Jean-Claude Trichet, the former president of the European Central Bank (ECB), warned on Wednesday that rising global debt and slowing globalization could pose significant risks to the world economy, including Korea. Speaking at a press conference held at the Lotte Hotel in central Seoul, Trichet stressed that excessive debt could trigger a new financial crisis in the most vulnerable sectors and countries.
In his remarks, Trichet noted that global debt has reached a record $307 trillion in the second quarter of 2023, pushing the ratio of global debt to GDP to 336%. He pointed out that Korea's household debt is risky, contributing as much as 102.2% to the country's nominal GDP in the first quarter of 2023. This makes Korea the only country in that period whose household debt exceeds GDP.
Trichet also expressed concern about slow globalization or deglobalization. According to him it will have a big impact on the Korean economy because the country is very dependent on global trade.
Regarding inflation, Trichet emphasized the need to "control inflation" to avoid a situation similar to what happened after the global oil crisis in the 1970s and early 80s. However, he noted that the current situation is different because the central bank's attitude towards inflation has changed.
The former ECB president observed that central banks, including those in the United States and Europe, are very interested in fighting inflation and have shown their ability to "drastically change their monetary policy". This is different from the past when they did not take inflation seriously.
Among the strategies to combat inflation, Trichet suggested ensuring coherence between the central bank's policy and the government's fiscal policy. He advised that there should not be a simultaneous increase in the policy rate by the central bank and the expansion of fiscal policy by the government.
Despite these challenges, Trichet remains optimistic. He praised the central banks of developing countries for shouldering their responsibilities in fighting inflation and acknowledged that the central banks of developed countries, after initial doubts, also showed appropriate determination to rein in inflation.
