By Ralph Atkins in Frankfurt
Oct 10, 2006
SourceJean-Claude Trichet, president of the European Central Bank, hinted strongly last night that he would prefer tougher regulation of hedge funds but said any measures would have to represent "a global solution".
The Frankfurt-based ECB has gone further than other global institutions in stressing the risks of hedge funds and expressing concern about herd instincts and the lack of transparency in the sector.
Financial authorities in general were not "fully satistified" with a regulatory system that relied heavily on supervised banks monitoring the activities of hedge funds, Mr Trichet told the European Parliament.
There were a variety of options that could be taken to increase the transparency of the industry but he believed that a "world wide consensus" was within reach on what might be feasible.
Separately, Mr Trichet said falling oil prices could lead to eurozone output and demand growth exceeding the ECB's expectations, if they prove lasting.
Underlining the upbeat view that the ECB has taken on the eurozone economic outlook, Mr Trichet also stressed the upside risks to inflation created by a faster growing economy. His comments strengthened expectations that the ECB will raise its main interest rate again in December. But Mr Trichet has been careful to leave the ECB's options open for 2007 - when many economists expect the central bank to leave interest rates on hold.
Mr Trichet said: "Risks to the outlook for economic growth are broadly balanced over the shorter term, although the recent fall in oil prices - if it were to prove lasting - has the potential to lead to somewhat stronger demand and output growth than embodied in the governing council's baseline scenario."
In its latest forecasts, published at the end of August, the ECB forecast eurozone growth would be in the range of 2.2 per cent to 2.8 per cent this year, and between 1.6 per cent and 2.6 per cent in 2007.