European Central Bank chief Jean-Claude Trichet warned Wednesday that global markets were in the midst of a major and ongoing correction that should prompt observers to look again at the 1997-98 Asian financial crisis and the first global oil shock. “I wouldn't say the worst is behind us,” the ECB president told European Union lawmakers in Brussels, speaking mainly in English and occasionally in French. “If we dont learn the lessons of the past we will find ourselves faced with the same problems that we encountered during the first oil crisis,” when countries responded to higher prices by raising wages and salaries, he added. That fueled an inflation spiral, choking off growth and causing widespread, stubborn unemployment that dogged Europe for decades. “Never forget, mass unemployment in Europe started with the very bad reaction after the first oil shock” in 1973, Trichet said. “We had no mass unemployment in Europe before the first oil shock. We were at full employment in practically all the economies in Europe.” The ECB chief also stressed the importance of full transparency by banks and financial institutions regarding losses suffered in connection with the US subprime market meltdown. The need for such clarity “is not a new observation” but had also been identified during the Asian financial crisis. “In the Asian crisis, transparency appeared to be absolutely necessary to avoid the contagion from one emerging country in Asia to the other emerging economies in Asia, and we observe exactly the same in the present episode.” Lack of transparency was “conducive to hectic behaviour of markets, herd behavior and turbulence,” he stressed. He summed up chronic turmoil on financial markets by saying: “Its an ongoing process of very significant market corrections with episodes of turbulences, high level of volatility, hectic behavior ... and overshooting.” Markets have been in nearly constant turmoil since the collapse of the US market for high-risk, or subprime, mortgages in August, which led to a global credit crunch as banks became wary of lending to one another. Trichet stressed several times Wednesday that the ECB saw its role amid the turmoil as one of anchoring inflation expectations, making it clear that an interest rate cut called for by some investors and politicians should not be expected in the near future. “We are the master of our own interest rates,” he said following calls for greater participation by eurozone political figures in contributing to monetary policy. Trichet said it was essential to ensure investors knew the bank would fight inflation first and foremost. __
