In his first public interview since stepping down as head of the European Central Bank, Jean-Claude Trichet tells Charles Moore why he believes that Europe needs unity.
'I read and read and read again, in English, a book called The Art of Memory, by Frances Yates,” says Jean-Claude Trichet. “It is my livre de chevet, my bedside book.” This classic work tells how, from the ancient world, people trained themselves to remember events, history, poetry, speeches. One of the tricks was to place the thoughts you wished to retain in imaginary rooms in your mind. Unusually for a central banker, M. Trichet cites “poetry” as his recreation in Who’s Who, and now he has more time to read. He retired as president of the European Central Bank in October, and entered the customary period of silence. This is his first public interview since he left the post.
We meet in the 18th-century Parisian rooms formerly occupied by the governor of the Bank of France, a job M. Trichet held for 10 years. They are decorated in pre-revolutionary splendour and look out on to the gardens of the Palais Royal. M. Trichet gave them up when the Bank of France became independent, to show that the break with government was real. By a quirk of fate, he has been given a perch in them in retirement.
M. Trichet has lived through the entire story of the euro. He was head of the French Treasury when the Maastricht Treaty was signed, and chairman of the European Monetary Committee when it formally permitted Britain to leave the Exchange Rate Mechanism in 1992. After his governorship, he became the second President of the ECB in 2003. He has seen the euro be born, flourish and then nearly break apart.
What key moments occupy the many chambers of his memory? He picks three from the early days. There was “the Maastricht moment” when it was decided that, “come what may, the single currency would start on January 1 1999. History was accelerating. It was the end of the Soviet empire.”
Then there was the decision to make the ECB independent: “This showed that the Germans were speaking for real about the new currency and the French were speaking for real about the independence of the Bank.”
Finally there was the ERM crisis of 1992-93. “History was hesitating. It was the worst monetary crisis ever… the boldness of the speculators. One market participant [George Soros] said he was stronger than the Bank of England.” The British debacle was followed by the battle for the franc. There, “France said, 'We will defend the franc without limit.’ It was a very bold decision. It was the sentiment of the actors that if the link between the two currencies [the franc and the deutschmark] could not be maintained, then the single currency would probably not be possible.” It was maintained. The euro went ahead.
He does not cite the recent dramas of the euro among his favourite moments. In 2008, he publicly declared that the single currency was “the most advanced feature of European unity”. Not long after that, the collapse of Lehman Brothers hit world markets. Later came the turmoil of the eurozone sovereign debtors, which is with us still. Ireland, Portugal, Spain, Italy all trembling on the brink, Greece defaulted.
Does he dare still say what he said then? M. Trichet leans forward, his sharply intelligent face very firm. “Yes! I can say what I said then. There have been dramatic shocks to all economies. The crisis was so exceptional. It would have been the worst even since the First World War, not the Second, if central banks had not taken early decisions and advanced countries had not reacted very boldly. After the collapse of Lehmans, the Europeans had a defence against the crisis. We proved a resilience in 2008 and 2009 which was the same as that of the United States.”
In this context of emergency, he defends the ECB buying of government bonds which enraged some members of the Bundesbank. “Since the very beginning of the crisis – August 9 2007 [when the interbank credit crunch hit] – the full supply of liquidity at fixed rate for different durations has been the main non-conventional measure of the ECB. In December last year [with the Long-Term Refinancing Operations (LTRO) of his successor, Mario Draghi], the governing council decided, unanimously, to go for three years. Taking into account the abnormal situation, it was a good decision for helping a better transmission of the ECB monetary policy. At the same time, the ECB stressed the decisive importance for banks to reinforce their balance sheets and for governments to redress their economic and budgetary situation. I think these are essential conditions.”
M. Trichet says that the monetary union itself “appears to be a real success. We have a better record of price stability than Germany, France or the Netherlands over the 50 years before the euro. We have the solidity and credibility of the currency. What has not worked well is the economic union. So we must formidably reinforce the overall governance of the economic union to get on to a sustainable fiscal path. It means reinforcing the Stability and Growth Pact and monitoring competitive imbalances very closely. We are learning the hard way from the crisis.”
But isn’t it a case of “the operation was successful: unfortunately the patient died”? M. Trichet is always keen to maintain the wider context. “No, the growth per capita across the zone is approximately the same as in the US. In some countries – Greece is a case in point – there was an unsustainable boom and now we have very much an inevitable correction. With Germany, the story is the other way round: it has shown a remarkable resilience in the crisis. In some countries, the unit labour costs in the public services were so great that a correction was absolutely unavoidable. Look at the emerging economies, or at Canada or Sweden. They are very resilient now, partly because they had their crises before. A crisis is an occasion to vaccinate against a future crisis!”
The original treatment prescribed by this medecin sans frontieres of central banking was, he complains, ignored. The eurozone’s Stability and Growth Pact [about limits to budget deficits and government debt] was agreed but not enforced. “In 2003-04, the major European countries decided that the pact would not apply to them. I and the ECB governing council opposed this very fiercely. We had an enormous battle. We won partially on the letter of the agreement, but the spirit was very largely abandoned. It wasn’t wise at all not to follow the kind of governance which is necessary in a single currency area. The euro area practised benign neglect. It is hard to believe now, but the pact was seen as a useless straitjacket.”
The ECB stood up to recalcitrant EU governments: “Ten governments out of 12 protested when we put interest rates up [at the end of 2005]. I and the governing council had quarrels on fiscal policy with Schröder, Chirac, Berlusconi. After the crisis erupted, lots of heads of government became much more understanding.”
But surely, I object, the ECB is attempting something impossible. I draw a 50 euro note out of my pocket and wave it in front of M. Trichet. No authority is stated on the notes, I point out. The only mark of power on them is his signature. His name must have been reproduced more often than that of any other European in history, but how can Europe be run by a bank? Where is the democratic authority?
M. Trichet stays cool and almost amused. “I will surprise you. The European institution to which I felt closest was the European Parliament, which is elected by universal polling. They supported the extraordinary decision that fines could be imposed on countries which breached the Stability and Growth Pact. They showed an understanding that when you have a single currency, you must have some elements of political union.”
National governments did less well: “The entire world was neglecting the dangers. The assumption of the efficient market hypothesis – part of the so-called 'great moderation’ period of price stability – had created the wrong impression of global financial and economic stability. Just before the crisis erupted, the main shareholders of the IMF were asking the directors to dismantle the lending wing of the IMF because it would no longer be needed. There has been a dramatic wake-up call for all of us. The lesson of the crisis is that it is necessary to go further. There are, I believe, more reasons to unite today than after the Second World War because of the new constellation of emerging economies like India, China, Russia and Brazil, as well as the US, which was, at the time, the only role model for the European single market. Europe must unite or be totally dwarfed. So we must have solid governance [last year he suggested, for the future, a single European finance minister] within the single area or we shall lose global competitiveness.”
What about the poorer countries in the area, though? They cannot devalue. Aren’t they trapped in permanent austerity? “I don’t think any country is trapped. It is absolutely necessary to apply very seriously the surveillance of competitive imbalances. You can’t rely exclusively on the spontaneous functioning of markets. If you cannot devalue you can correct by working on your costs. Ireland has been quite impressive in this. So have the Baltics.”
Doesn’t it worry M. Trichet that people feel hatred towards the ECB? There is violence in the streets. “When you adjust your policies, which is always painful, people put the blame on others. We saw that in the Eighties and Nineties. The IMF was the usual scapegoat. Now it’s better, because the pressure comes on from friendly European countries.”
Do the poorer eurozone countries really see the richer ones as friendly? Isn’t exactly what Europeans have long struggled to avoid – a German-dominated Europe – now coming about? “This presentation does not correspond to reality,” says M. Trichet briskly. “Germany is a big and competitive economy, which is good. Countries only pay in proportion to size. There is a very strong European spirit. We must combat all past stereotypes. I am a true European. There is a profound complementarity between our various cultures.”
And there we have it. Despite his courtesy and rationality, the red of the Legion d’Honneur in his buttonhole, the English that is more elegant than that of a native, M. Trichet is, deep down, more like an unshakeable religious believer than the perfect bureaucrat. For him, the “true European”, every setback is further proof that the faith has not yet been devoutly practised. I throw back at him a quotation from the German philosopher Kant which he has used in public. Institutions, said Kant, “continue to develop until a stable equilibrium is reached”.
With the euro, hasn’t the reverse happened? It seemed to have equilibrium, and now it has lost it. The single currency is declaredly “irreversible”, but is it? Couldn’t Greece fall out, for example?
Here M. Trichet avoids words for direct quotation, beyond saying “I don’t envisage it as possible or desirable”, but I get the feeling that he might not fight hard to keep Greece within the system. “I do have anxieties about surmounting the present difficulties,” he admits. “The crisis started in August 2007, and it is a global crisis of the advanced economies. We still have quite major difficulties. Therefore we have to be humble. Complacency is the last thing to display, but I am a true confident European. Think of the world shocks, such as the depression which nearly gripped America after Lehman Brothers. In this context of the global crisis, the problems of the governance of the euro are severe, but only one among several issues that the advanced economies have to fix.”
And then the anglophile M. Trichet, who regrets Britain’s absence and says that his “personal intimate position” is that “Europe is not complete without the UK”, issues me with a polite rebuke. “You have necessarily a British perspective. You may see things from the outside. Inside, one does not feel that fragility. The underlying support is of a historical nature and is stronger than you might think. Beware of applying the preconceived grid.”
I’ll try my best, I promise.