Europe's Economy Needs More Flexibility: Trichet

The rest of the year will be "less buoyant than the second quarter" and the European Central Bank remains "very cautious and prudent," ECB President Jean-Claude Trichet told CNBC in an exclusive interview.

Jean-Claude Trichet
Fabrice Coffrini | AFP | Getty Images
Jean-Claude Trichet

"We don't declare victory, we have to remain very cautious, very prudent, and do the job, which is I have to say to continue all of our hard work for redressing fiscal policies in particular and to re-establish a level of confidence, consolidate confidence, which is certainly the most important point in Europe right now," Trichet said.

The euro zone's economic growth depends heavily on domestic demand, according to Trichet, who believes that price stability remains the best way to ensure sustainable growth. He does, however, see problems holding back growth.

"I have to say that we have a big difference on both sides of the Atlantic. The US has an economy which is flexible – it is the mark of the US economy. We in Europe in general, in the 27, also in the 16 of the euro here, we have economies that are not sufficiently flexible," Trichet said.

"So the main message is: let's work very actively to have a more flexible economy because it will augment the growth potential of Europe," he added.

Trichet said he was disappointed with the so-called Lisbon Agenda and that he hopes Europe can a better job over the next 10 years than its policy makers did over the last decade.

"We had a program which was called the Lisbon Agenda – we did not implement as we should the Lisbon Agenda over the last ten years. We have a new workshop now which is 2020 and in the next ten years we must work very forcefully to deliver the structural reforms," he warned.

Flexible goods and services markets are crucial for achieving this purpose, he said. The European Union has not yet achieved a single market for goods, despite its being its ambition for more than 50 years, and it is lagging behind in the services sector compared to the US, Trichet added.

In labor markets, countries which have adopted more flexibility have a greater advantage in terms of growth and lower unemployment, he also said.