MADRID, Sept. 14 (Xinhua) -- The former Chairman of the European Central Bank (ECB) said on Friday that the current economic crisis had been potentially even worse than the 1929 banking crash, calling for changes in global economic governance and greater European unity.
Jean Claude Trichet was speaking as a guest at the IE Alumni Forum 2012, which was held in the Spanish capital city of Madrid and attended by over 1,000 former students from over 50 different countries.
"The (economic) issues are difficult and numerous," he said. "Since 2007 we have seen a succession of shocks that have not been seen in advanced economies since World War Two. They are potentially even worse than those which triggered the 1929 crisis."
"All of the continents have been called to change their policies. We have to look at what is happening with care and embark on a better and deeper understanding of events of last 5 years. To understand the new world we are it is essential to draw the right conclusions," he said.
Regarding monetary policy, Trichet said "we have to strictly separate standard and non-standard measures" before discussing non-standard measures.
"They complement standard measures to restore effective interest rate decisions. Five conditions have to be met to embark of them. First it must be commensurate with the degree of the dislocation and disruption of the markets," he said.
Other measures included actions to urge financial institutions to refinance and to ask the European institutions to embark on improvement of economic governance, while the final level was for a "structural change in the global economy where the central banks called for a reinforcement of global governance," according to the former chief of ECB from 2003 to 2011.
In European terms Trichet said that integration was more important than ever given the rise of emerging markets such as China and India.
"We are called to make a 'quantum leap' in the integration of Europe, this is the main lesson we can draw," he said.
"We have six major weaknesses which need to be addressed," among which were the lack of banking union and lack of crisis management tools, although he was optimistic that some of the issues had been addressed. "With hindsight it is hard to see how in 2003 and 2004 we neglected to see what could happen," he admitted.
"When you are in a single currency any deviation creates a handicap in terms of competitiveness and paves the way for problems in terms of growth and jobs. Now we have a banking union which is in the making and crisis management tools. So that is progress," said Trichet.
"Not only will we have to improve as we are doing, but we have to reflect on the possibility of economic and fiscal federation in the continent," he assured, admitting it was a huge step forward, but "people only accept change when affected by necessity and only accept necessity when crisis is upon them."
The forum was inaugurated by Prince Felipe of Asturias whose speech discussed the need for continued training and education as it was important for entrepreneurs to create new companies as well as focusing on sustainability and social inclusion.