Monday 16 September 2019

We will get by, with a little help from our EU friends

Marc Coleman gets the impression from two top Europe figures that it's one for all and all for one when it comes to a crisis

Marc Coleman

LAST Thursday I interviewed two heavy hitting figures in Europe, both of whom were in town to address the Institute for European Affairs.

The first was EU Commissioner for Enterprise and Competitiveness, Guenther Verheugen. The last, and definitely not the least, was European Central Bank President Jean Claude Trichet.

Both were listened by an eager, if not scared, audience that was hungry for inspiration. That audience wasn't disappointed. And neither was I. I discovered that in this time of crisis Ireland does, thank God, still have friends on the European stage and secondly, that however you voted in the Lisbon treaty, the importance of Europe in saving our hides is now undeniable.

The knife-edge situation of our public finances was revealed when last Wednesday the National Treasury Management Agency (NTMA) issued €4bn worth of three-year bonds. Although successful, the sheer size of the interest rate spread over a benchmark issue of German bonds of equal maturity was just shy of two-and-a-half per cent. That spread -- double what prevailed a year ago -- shows just how far we have fallen in the world's esteem thanks to our banking crisis.

Despite that, there is moral support out there. In an address given a week before my interview with him, Mr. Trichet rejected suggestions that Ireland was the weakest link of the euro system. Where they were too smart to believe our guff about how good we were during the boom, men like Trichet are also correspondingly balanced enough to stop us from going to the other extreme. Where despair and agonising seem the order of the day in Ireland, Trichet and Verheugen are taking action to stem the crisis. On Thursday Verheugen told me that there will be a freeze on the issuance of any red tape applied to small business. And a week after new car sales collapsed by 66 per cent here, he outlined measures to encourage the car industry in Europe.

Next Thursday, it's Mr. Trichet's turn. A week before the governing council meeting that occurs on that day, I asked him if he would really, as I expect, cut interest rates and if so by how much? At a press conference three weeks before in Frankfurt, I had asked an obscure question about inflation to which he responded: "I do not exclude that we could decrease rates in our next meeting". I put the question to him again last Thursday, only to have him laugh and cut me short: "My response will be very, very simple. I don't comment on future monetary policy because I am in the purdah period."

The persistence of Mr Trichet's refusal to comment -- together with one other thing -- convinced me a rate cut is, indeed, on the way. The other thing was a comment made before Trichet's visit by Axel Weber, a fellow ECB council member who is also President of the Bundesbank. Reacting to regional inflation figures for the German state of Saxony, Mr Weber predicted that German inflation would be "negative" in 2009. As the ECB interprets its mandate as keeping inflation close to or at two per cent, and as Germany accounts for around one quarter of the eurozone economy, that is as good a signal as any that rates are coming down soon.

Knowing I wouldn't get anything from him directly, I went on to ask another question that is on everyone's mind: When is this recession going to end?. US Fed chairman Ben Bernanke has gone on record as saying that the US economy could recover by 2010. When I asked him if he felt the eurozone could also recover by then, Trichet didn't demur but hinted that the next set of ECB forecasts could change that outlook.

From cure to prevention, I next asked Mr. Trichet what he thought of Commission plans to create a super supervisory body -- the European Systemic Risk Council -- that would be run by the ECB and chaired by himself. The ECB has lobbied hard to take on the role of a super regulator. On Wednesday a report submitted to the Commission suggested that this council be set up, but that it be mainly confined to monitoring and issuing warnings; a good cop rather than a hard cop approach.

Trichet's response suggests the ECB had hoped for more: "The proposal is particularly interesting in terms of optimising macroprudentials . . . it goes in the direction that we thought was possible."

That report also criticised central banks for keeping interest rates too low as one of the reasons for the crisis. On this, Trichet rejects that the ECB has done anything wrong: "As regards the ECB, I have no memory of anyone telling us we were too loose at any time. I have the memory of a lot of good advice that we received to the effect that we were constantly too orthodox. So, in a way, such remarks it would seem, would not apply to us".

Finally I ask him about a plan to help out struggling eurozone countries like Ireland by issuing government bonds with the support of stronger eurozone states like Germany. Trichet refuses to comment. And as far as he is concerned, there is no point in helping countries that don't first help themselves. "We are calling on all governments without any exception to be up to their responsibilities . . . you have to be simultaneously very, very rapid and expeditious in coping with the immediate constraints and the immediate very demanding situation and also to convince households, firms and economic agents that after the present period we would then be back to a sustainable pace".

Although Trichet didn't answer my question on possible help from other eurozone countries, an answer did come in from a different source. German Chancellor Angela Merkel and Bundesbank chief Axel Weber said on the same day that I was interviewing Trichet that, yes, help could be forthcoming from Germany to Ireland but that a change in our corporation tax regime might be the price to be paid.

Marc Coleman is economics editor of Newstalk 106-8 FM

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