BRUSSELS, March 26: European Central Bank chief Jean-Claude Trichet warned on Wednesday that global markets were in the midst of a major correction that recalled the 1997-98 Asian financial crisis and the first global oil shock.

“I wouldn’t say the worst is behind us,” the ECB president told European Union lawmakers in Brussels.

“If we don’t learn the lessons of the past we will find ourselves faced with the same problems that we encountered during the first oil crisis (in 1973),” when governments responded to higher prices by raising wages and salaries, he said.

That fuelled an inflation spiral, choked off growth and caused widespread, stubborn unemployment that dogged Europe for decades.

“Never forget, mass unemployment in Europe started with the very bad reaction after the first oil shock,” Trichet noted.

“We had no mass unemployment in Europe before the first oil shock. We were at full employment in practically all the economies.”

In what he called one of the eurozone’s most striking successes, Trichet said that 15.7 million new jobs had now been created since the single currency was launched in 1999, compared with 4.5 million in the previous nine years.

The number of new jobs was significantly more than their US equivalent, he noted.

The ECB chief also stressed the importance of full transparency by banks and financial institutions on losses linked to the US subprime home loan crisis.

The need for such clarity had already been identified during the Asian financial crisis, Trichet said.

“In the Asian crisis, transparency appeared to be absolutely necessary to avoid the contagion from one emerging country in Asia to the other emerging economies in Asia and we observe exactly the same in the present episode.”

Lack of transparency was “conducive to hectic behaviour of markets, herd behaviour ... and turbulence,” the central banker stressed.

He summed up chronic financial market unrest by saying: “It’s an ongoing process of very significant market corrections.”

Markets have been in nearly constant turmoil since the collapse of the US market for high-risk or subprime mortgages in August, which sparked a global credit crunch as banks became wary of lending to one another.

Trichet stressed repeatedly on Wednesday that the ECB saw its role amid the turmoil as one of anchoring inflation expectations, making clear that a cut in the cost of borrowing hoped for by some investors and politicians should not be expected soon.“We are the master of our own interest rates,” he said, following calls for greater participation by eurozone political figures in to monetary policy and for the ECB to follow the US Federal Reserve in slashing its main lending rate.

The ECB is independent by statute in managing monetary policy in the 15-nation eurozone.

In terms of dealing with the financial crisis, Trichet said it was essential to ensure investors knew the central bank would fight inflation first, because market instability would be even worse otherwise.

Head UniCredit economist Aurelio Maccario said “the ECB is clearly convinced that the solution to the financial crisis doesn’t involve traditional monetary relaxation.

“With this kind of posture, a rate cut is not in sight yet.”

At Bank of America, Gilles Moec added that ECB governors who favoured tight lending policies were “still clearly winning the game in (the ECB).

“Trichet’s tone reflected a firm confidence in the path chosen by the ECB, he added.

In response to calls for more oversight, Trichet suggested markets be allowed to establish appropriate regulations, codes of conduct and benchmarks on their own, but allowed for other options if necessary.

“If it appears that they are either insufficient or that there is no capacity for the private sector to work out agreed benchmark principles, then regulation is necessary,” Trichet said.—AFP