DAVOS, Switzerland, Jan 24 (Reuters) - Ensuring price stability is the European Central Bank's sole priority and not at odds with a goal of ensuring stable financial markets, President Jean-Claude Trichet said on Thursday. Speaking to a panel at the annual World Economic Forum, Trichet urged central banks to do everything to minimise the impact of financial risks. But he said those risks were an integral part of market economies.
"There is one needle in our compass and it is price stability. There is no contradiction between price stability and financial stability," Trichet said.
He said the market correction, which the ECB and other central banks had warned over a year go, was now taking place and it was significant.
But under the capital market system it was natural for risks to emerge and central banks' main job was to solidly anchor inflation expectations.
"What is extremely important is to offer as steady grounds as possible. First, price stability and then solidly anchor inflation expectations... If risks did not materialise you would not be living in a market economy, you would be living in the Soviet Union." Trichet brushed off suggestions that central banks bailed out investors by providing liquidity in cordinated actions.
"If you do the job as regards the smooth running of the money markets -- we did not bail out anybody," he said.
U.S. deputy Treasury secretary Robert Kimmitt said authorities -- Group of Seven, Eight and 20 -- should coordinate their responses to shocks but must not overreact.