France's public debt is very much in the spotlight. The country's recently appointed prime minister, Michel Barnier, calls it a "sword of Damocles" hanging over future generations. Indeed, for many countries, paying interest on the national debt deprives them of investing in education, healthcare, research and so on. Similar debates are happening across the EU, as the European Commission asks member states to submit their debt reduction plans. We ask Jean-Claude Trichet, former president of the European Central Bank (ECB), for his read on the debt situation, and on prospects for an overall European recovery. We also touch on EU-China relations, as a tensions come to a head over the issue of China subsidising the electric vehicles that it exports to Europe.
On China and the EU, Trichet says: "Overall, it seems to me that the position of the Europeans is not the position of the US, and rightly so, because we have absolutely no interest in embarking in a drama at that level. We are much more open than the US. We depend much more for our growth on external trade. That being said, of course we have to defend our interests in the best fashion possible. There are nuances between the various European countries because they don't have exactly the same relationship with China. But it seems to me that we all agree on the fact that we should not have any dramatic break in our relationship with China. That would be a big, big mistake."
Asked whether the European Central Bank should cut interest rates to stimulate the eurozone economy, Trichet replies: "As a former president of the central bank, I never give advice to my colleagues. I would only mention the fact that the market, which considered that it was extremely unlikely that the central bank would decrease rates, is now considering that it might be more likely, particularly after we had the PMI (Purchasing Managers' Index) figures, because the PMI figures were not good. The figures for September signal some kind of contraction of the economy."
On the other hand, Trichet notes that there is relatively good news on inflation. "We are now below 2 percent as regards headline inflation. Core inflation is also going down. It's doing so slowly, but it's going down. So it means that the ECB is on the right road towards stability."
Asked about the French prime minister's debt reduction targets, Trichet states that they are "not only realistic, but absolutely necessary, because the situation is grave. We have the highest level of public spending as a proportion of GDP in the euro area. And we have a level of outstanding debt which is number three in Europe, after Italy and Greece. So this says a lot, and things have to be tackled very resolutely."
Trichet is upbeat about Barnier's chances of getting a budget through a partly hostile parliament, however.
"It seems to me that there is a change in French public opinion; a rediscovery that we have to take our debt very seriously. You can see that, for example, in the editorials of major newspapers. There is a change in the psyche of France. From that standpoint, I think the prime minister is now more likely to get a majority [in parliament], or at least to not to face a motion of censure."
Programme prepared by Isabelle Romero and Luke Brown
