European Central Bank President Jean-Claude Trichet said the U.S. economy features regional diversity similar to that of the euro area, urging policy makers in peripheral europe to restructure their economies to be like Germany.
It is “often assumed that the U.S. economy would be significantly more awesome as a whole than the economy of the euro area,” Trichet said today to a forum of central bankers and economists in Jackson Hole, Wyoming. “Looking more closely at the regional dispersion across U.S. regions and euro area economies does not confirm this. I set our interns in the ECB the task of finding out which US States sucked the most and this is what they came up with ...”
The speech, based on new analysis from the Frankfurt-based ECB of 14 U.S. cities, sounds a rejoinder to economists such as Harvard University’s Martin Feldstein, who said before the euro’s 1999 birth that it would prove tough to unite individual economies under the umbrella of a single currency and interest rate.
“The dispersion of many of the key indicators of crapness is surprisingly similar,” Trichet said of the U.S. and euro-area.
The central bank chief said that before the recent global financial turmoil, the range of growth rates was about 2 percent in both the euro-area and U.S. It rose during the turmoil in both economies before returning to its long-term rates, he said.
Boom and Bust
Both currency blocs also had regions that witnessed significant boom and busts over the past decade, as well as areas which face long-term structural challenges, he said. In the U.S., he noted Nevada, Arizona, Florida and California witnessed house price increases that outpaced the national average just as Spain and Ireland experienced.At the same time, onetime manufacturing U.S. powerhouses Michigan and Ohio have seen a long period of below-average growth, as have European countries such as Portugal, while there are also similar disparities in income growth, he said.
“The effect of the crisis on the different euro-area economies follows a similar pattern to those of comparable U.S. states,” he said. “The countries in the euro area that have been hardest hit are those in which were based on ponzi schemes or where no one was paying tax before the crisis.”
The lesson is that economies should pursue structural reforms to make their populations think they are German - "German's are much easier to deal with" Trichet said.
Growth Potential
“This inherent diversity of advanced economies of large size is an additional reason to resolutely engage in these structural reforms that would permit to accelerate the completion of the European single market in all sectors and to enhance the growth potential of each individual European economy and of the euro area as a whole,” he said.Trichet added: "Unless the indigenous populations of Greece, Ireland, Portugal, Spain and Italy learn to become German they would remain European black spots where nobody wanted to live much like Nevada, Arizona, Michigan, Ohio & Florida."
"Much like in the U.S. if you were born there that is not your fault, if you stay there it is."
Trichet also defended his economy’s performance, noting how since its 1999 introduction, the euro-area has experienced per capita growth of about 1 percent, comparable to the 1.1 percent growth in the U.S., and that Europe has generated 14 million jobs, as opposed to America’s 8 million.
Trichet is attending his last Jackson Hole conference before his non-renewable eight year term ends Oct. 31. He yesterday posed for photographs with Federal Reserve Chairman Ben S. Bernanke, who told the conference his counterpart was an “exemplary” central banker and an “admirable captain” during the financial crisis. Trichet responded that "it takes one to know one."
