The flow of funds from the emerging to the developed world is "profoundly abnormal" and not sustainable in the long term, European Central Bank President Jean-Claude Trichet said on Saturday.
The United States is currently seeing massive inflows of capital from the developing world, notably China, that are financing its current account deficit and helping keep long-term interest rates low though bond purchases.
"It is not sustainable in the long run that the emerging world would finance the industrial world. It doesn't correspond to the interest of the emerging world, neither to the interest of the industrialised world," Trichet told a panel at the World Economic Forum in Davos.
"It is profoundly abnormal that there is a flow of financing going from the developing world to the industrial economies."
Trichet said Europe could not be expected to play a major role in correcting global imbalances, adding that without an inflow of petro-dollars in the wake of soaring oil prices, real rates could be a lot higher.
His views were echoed by Indian Finance Minister Palaniappan Chidambaram: "Global imbalances are deepening and that has serious consequences for developing countries like India."
{{/usCountry}}His views were echoed by Indian Finance Minister Palaniappan Chidambaram: "Global imbalances are deepening and that has serious consequences for developing countries like India."
{{/usCountry}}