European Central Bank President Jean-Claude Trichet warned yesterday against putting too much faith in forecasts of an economic recovery next year.
"We should see a return to positive growth during next year," Trichet told Europe 1 radio. "This is what I have been telling everyone."
But he added that "it would be a mistake to believe that this is a foregone conclusion: There are uncertainties, risks".
Trichet added that much depended on consumer and investor confidence and on government handling of measures that have been approved to combat the recession hitting Europe.
Most countries in the 27-nation European Union are predicting a turnaround in the first quarter of 2010.
He said economic activity is expected to pick up next year and that the ECB sees a slowdown in the decline of activity now.
He said the turbulence in Iran has added to risks for the global economy, although it is too early to make an exact assessment, Trichet said yesterday. "Any additional geo-strategic tension is obviously an extra risk for the international economy," he said, adding that while it was too soon to assess the consequences of events in Iran, they were "obviously a risk factor".
"You can talk about Iran as part of a wider analysis that would be associated with risks for the oil markets, not just because of Iran but because of the whole region."
He dismissed concerns over a possible threat of deflation and said the ECB would guarantee price stability over the medium term.
He said households had shown they did not believe "for a second" that there was a risk of deflation.
"We guarantee them that over the medium term that inflation will not take away what they have gained by the low level of inflation today," he said.
The ECB chief said that the so-called Tobin tax, a proposed levy on currency transactions named after the 1981 Nobel laureate James Tobin, is not sufficient to reinforce the global economy. He also said deficit reductions must begin next year if the economy begins to grow.
Trichet believes that there is no room for governments that have borrowed billions to fight the economic crisis to accumulate more debt.
"There is a moment where you cannot spend anymore and you cannot accumulate any more debt.
"I think we are at that moment," Trichet said.
He said European Union decisions on regulation are an "important step", saying that ECB measures will not endanger price stability in the medium term and that the criteria to join the euro region "must be respected".
Trichet said he sees no need for "significant" additional budget stimulus or new measures to strengthen the international financial system. Nations are unable to boost their debts or deficits further, he said in the interview.
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