THE GOVERNOR OF the Central European Bank has today warned that governments need to cut spending and public sector wages to fix their national accounts.

Jean Claude Trichet said that if governments failed to do so it could lead to a a Japanese-style “lost decade”, adding that imbalances needed to be addressed as “an important precondition for sustaining a durable recovery”.

Speaking to central bankers gathered at Jackson Lake Lodge, a US mountain resort, Trichet strengthened his recent support of fiscal tightening over providing stimulus a long-term method of overcoming the economic downturn.

Trichet used Ireland’s achievements in debt reduction from 1994 to 2007 as an example for other governments to follow when tackling debt.

He said that sustainable and balanced economic growth depended on debt reduction, saying:

As long as it is unclear when the adjustment will occur and who will bear what fraction of the costs of adjustment, firms and households may delay their investment and consumption decisions, slowing down the economic recovery.