Sunday 20 October 2019

Trichet: pantomime villain, scapegoat, or the real master of our economic doom?

Former European Central Bank president Jean-Claude Trichet now works for Pimco, the world’s largest firm of bondholders. Photographer: Marlene Awaad/Bloomberg
Former European Central Bank president Jean-Claude Trichet now works for Pimco, the world’s largest firm of bondholders. Photographer: Marlene Awaad/Bloomberg
Donal O'Donovan

Donal O'Donovan

These days, Jean-Claude Trichet is a trusted advisor to the world's biggest bond investors. It is a fact that is certain to stick in the craws of many in this country who see him as the villain of the crash, thanks to his insistence in 2010 and 2011 that taxpayers here take on the burden of bailing out the bondholders of bust Irish banks.

The Banking Inquiry came as close as it could to casting Jean-Claude Trichet as the baddie of the piece in its final report.

That's unfair in many ways. The former European Central Bank (ECB) president was certainly part of the machinery that kept interest rates unsuitably low in the period before the crash, but he didn't personally insist that Irish banks lash the billions they borrowed at those cheap rates out to developers, or force the same builders to buy property at ludicrous prices.

Decisions Trichet took during the banking crisis that inevitably followed the bubble were unpopular, and in some cases plain wrong, but were hardly taken maliciously.

Still, it is fair to say that he doesn't make himself easy to love. Last month, the retired Frenchman took a job as an advisor to the world's largest firm of bondholders, California-based Pacific Investment Management Company (Pimco).

Mr Trichet sits on the Pimco Global Advisory Board, where, alongside other crash-era players including former British prime minister Gordon Brown and Ben Bernanke, who ran the US Federal Reserve from 2006 to 2014, he helps guide the investment giant - which is itself owned by German insurance giant Allianz - through the tricky waters of global finance.

Having left the ECB in 2011, Jean-Claude Trichet is free to work where he wants.

But given the ongoing controversy about just how far Mr Trichet went in forcing Irish tax payers to honour the bond debt of bust banks back in 2010 and 2011, it's the most recent role with Pimco that's likely to leave a bad taste in the mouth, certainly in Ireland.

Ironically, during the crash Pimco was one of the few big investment houses that put its head over the parapet and said Ireland would have been right to burn bondholders, the policy Mr Trichet used all of his powers to prevent.

All of his powers, and then some, in fact, according to Ajai Chopra, the former IMF man in Ireland at the time.

Back in 2011 though, one of Pimco's European strategists Andrew Bosomworth told Bloomberg that bondholders needed to face "bail in" arrangements in the Irish banks

"Look, Ireland is closing kindergartens to pay senior bondholders - ethically that is a very questionable policy," he said at the time.

Pimco is understood to have sold its Irish bonds in the wake of the crash, rather than take a punt on being repaid, so it didn't benefit from the Trichet doctrine.

So is Trichet the villain of the piece?

No, but despite being famously bright, it's difficult to argue that he acquitted himself well during the crisis - and not just in Ireland.

From 2008, the ECB never really got to grips with the banking crisis. There was no real stability and certainly no recovery before Mario Draghi eventually took over late in 2011.

Under Trichet, the ECB was reactive and tardy in responding to the crisis.

The bank raised interest rates in 2008 and 2011, moves that restricted credit when the economy was already in a downturn.

The policy was eventually reversed, but even now the Eurozone recovery has not caught up with the US or UK, where central banks and policy makers took the opposite tack.

In hindsight, and with the Promissory Note under his belt, Michael Noonan can argue - and surely will - that keeping Trichet onside, notably by refusing to blame him in the Dáil for protecting bondholders, helped rebuild important bridges to Europe.

It doesn't really wash. Under Trichet, the ECB never did agree to let Michael Noonan tear up the notes. That happened on Mario Draghi's watch.

Irish Independent

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