Jean-Claude Trichet: Interview with Le Point
English translation of the full Interview with Mr Jean-Claude Trichet, President of the
European Central Bank, in Le Point, conducted by Patrick Bonazza on 22 July 2011,
published on 27 July 2011.
* * *
Has the euro been saved, then, after last week's summit in Brussels?
The euro itself, that is the currency, has never been under threat. The risk was not to the
stability of the single currency, but rather to the financial stability of the euro area owing to
the fiscal problems in Greece. The euro is not in question: it is solid, strong and credible. The
euro has kept its value for over 12 years. The European Central Bank (ECB) is an anchor of
stability and confidence, which is very important, particularly in turbulent and difficult periods.
Yes, but aren't the struggling countries in the euro area putting the single currency at
risk?
The pressure observed on sovereign risks is not solely a European problem, it is also a
global problem. The United States and Japan also have major fiscal problems, as you well
know. The paradox is that, from a global perspective, the euro area is in a far better situation,
with a consolidated fiscal deficit of around 4.5% of GDP this year, compared with
approximately 10% of GDP for these other two countries. On the other hand, individual
countries in Europe, in particular Greece, are in a much more difficult situation. All the
decisions taken in Brussels by the Heads of State or Government are important for the
financial stability of the euro area.
What part did the ECB play in the decisions taken in Brussels on 21 July?
In such circumstances, it is necessary to take a close look at the role of the central bank. We
are responsible for ensuring that the currency, savings and purchasing power of 331 million
citizens across 17 countries remain sound and stable. As you know, inflation hits hard on the
poorest and most vulnerable among us. Our democracies entrusted us with this responsibility
and we are living up it! Since the launch of the euro 12 years ago, we have achieved an
average annual inflation rate of 1.97%, which is in line with our definition of price stability, i.e.
below, but close to, 2%. Moreover, by being in charge of a single currency for 17 countries
and 331 million citizens, the Central Bank has an overall view that enables it to convey
messages to those taking government decisions, knowing of course, that they are in full
control of their own decisions.
Was your participation in the meeting between Sarkozy and Merkel on 20 July in Berlin
planned?
Angela Merkel and Nicolas Sarkozy invited me to join them at the Chancellery in Berlin. The
Governing Council of the ECB advised me, in real time, that it would be useful if I accepted
this invitation so that I could put across the views of the ECB.
Another €109 billion for Greece, after €110 billion last year. Do you believe that Europe
is going to be able to raise such large sums of money for a single country just like
that?
What matters above everything else - and it is absolutely essential - is that Greece regains
control of its economic balances, that Greece itself implements the measures for restoring its
budget, government accounts and competitiveness as quickly and as rigorously as possible.
What matters is that it implements rigorous structural reforms and resolves to embark on a
privatisation programme.
Last year, France raised €4 billion and after the summit in Brussels it is going to
borrow an additional €15 billion between now and 2014 to the benefit of Greece. Are
you sure that the French, who have their own problems, will accept this indefinitely?
Greece is committed to doing everything, and will do everything - under the strict
surveillance of Europe, which is something we have always called for - to restore
confidence, regain stability and pay back its loans from Europe. The Europeans are not
subsidising Greece to never see their money again. They are investing in its recovery. Of
course, they need to monitor their investment closely.
The 17 euro area countries have bought Greece some time, but that's no guarantee
that the country is going to accept the austerity measures being imposed on it.
We are not imposing "austerity" on Greece. Greece itself is correcting its years of
mismanagement. Throughout the years in the run-up to the crisis, Greece continued to
spend more than was coming in. Sound governance is the only way to once again achieve
growth and job creation based on a newfound competitiveness.
Do you think that Greece's membership of the euro area is partly to blame for its
downfall? Despite the level of inflation in the country, Greece has been able to borrow
at very low rates, thanks to the ECB. This gave rise to a credit bubble.
No, I don't think so, because the euro area has only been in existence for just under
13 years, and prior to that, other countries, everywhere in the world, had experienced similar
problems to those that Greece is experiencing today. Moreover, we are seeing today,
unfortunately, that the issue of poor fiscal discipline is arising more often in developed
countries, whereas before it was only an issue in developing countries - in Asia, Latin
America or the Near East. Greece is a symbolic example of this turnaround.
And what is the reason for this turnaround?
The fact is that the monitoring of economic and fiscal policies in the euro area was not as
good as it should have been. The ECB and the Banque de France - Christian Noyer and
myself - have always said with regard to Europe that the Stability and Growth Pact was not
an artificial creation conveying an ultra-orthodox view of the economy coming from across
the Rhine. It was a fiscal framework that was absolutely necessary for a monetary union that
had neither a federal government nor a federal budget. On behalf of the Governing Council, I
publicly denounced the liberties that in 2004-05 Germany, France and other major countries
wanted to take, and indeed took, in the form of a Stability and Growth Pact that was
weakened both in letter and in spirit. We have constantly called for closer monitoring, not
only of fiscal policies, but also of indicators of competitiveness and internal imbalances.
Today, in the light of the crisis, everyone can see that we were right.
And that you have a better chance of being listened to...
I sincerely hope so.
Over the last few weeks, you have fought against the idea of asking the private sector
(banks, insurance companies, funds, etc.) to incur losses to help Greece. It would
seem that the Heads of State did not listen to you?
Once again, we have always said publicly that it is not the Central Bank that takes the
decisions, but the governments themselves. With regard to private sector involvement and
Greece, we have had three very clear messages. First, we said that any participation had to
be voluntary. As far as this is concerned, our advice has been followed. Second, we said that
it was necessary to avoid a "credit event", and at the moment, it looks as though we have
done so. Lastly, our third message was that a "selective default" should be avoided.
However, in the event of such a default, governments would have to recapitalise the banks
and provide credit enhancement for the collateral accepted by the ECB for its refinancing
operations. We secured this guarantee which was essential to protecting the integrity of the
ECB in the event of a "selective default". It was essential for the ECB, and all the Eurosystem
central banks in order to maintain stability and confidence in Europe. The protection of the
integrity of the central bank is non-negotiable.
Following the summit in Brussels, the European Financial Stability Facility (EFSF) is to
provide cheaper loans to programme countries and will also be able to purchase
bonds and recapitalise struggling banks. With this, are we not getting sucked into in a
costly and vicious circle?
We have advised governments to incorporate more leeway and flexibility into the
EFSF - taking into account that we are experiencing exceptional circumstances since the
onset of the worst crisis since the Second World War. A more versatile and flexible EFSF will
be a more efficient tool for helping to ensure the financial stability of the euro area as a
whole.
With regard to private sector involvement, the Heads of State have affirmed that these
solutions would only be applied to Greece. Why the special treatment?
The creditworthiness of a country is absolutely essential. Whether you are a household, a
company or a country, you will be granted loans on good terms if the lender is confident that
he will be paid back. That's why confidence is so important. The Heads of State or
Government wanted to remove all ambiguity, and in their own words they said: "All other
euro countries solemnly reaffirm their inflexible determination to honour fully their own
individual sovereign signature. The euro area Heads of State or Government fully support
this determination, as the credibility of all their sovereign signatures is a decisive element for
ensuring financial stability in the euro area as a whole". I could not have put it better myself.
Did you look into the possibility of Greece leaving the euro?
Not for a minute did anyone consider that option.
But what do you have to say to the many people who don't believe that Greece will
pull through unless its debt is drastically reduced?
The problem that Greece has is that it needs to return to a path of sound governance as
quickly as possible, i.e. it needs to restore its budget to health, implement a rigorous
privatisation programme and carry out essential structural reforms. The proposals from the
private sector and the decisions of the European governments, i.e. lowering interest rates
and extending the duration of the loans, will ease Greece's debt service burden considerably.
Furthermore, the outstanding debt will decrease through bond swaps and debt buybacks. But
what is important is that Greece carries out the adjustment itself, helped by this very
important decrease of the yearly service of the debt.
After Brussels, will countries like Spain or Italy avoid the Greek contagion?
Without exception, every country is aware that it is experiencing an exceptional crisis. For
example, the Italian government has just adopted a fiscal programme that will reduce its
deficit to less than 3% from 2012. How many major developed countries, outside Europe,
can say that? Spain has started to carry out ambitious reforms, as noted at the meeting on
21 July. The European Central Bank has called for all countries to strictly adhere to the letter
and spirit of the Stability and Growth Pact, to strengthen competitiveness and, in particular,
to monitor production costs and carry out the necessary structural reforms. That is the path
to sustainable growth and job creation.
The crisis has been enlightening. Within the euro area, those countries that have been very
attentive to their budget and their competitiveness, such as Germany or Austria, have
succeeded in creating jobs and reducing unemployment, even during the crisis. The same
applies to countries outside the euro area, for example Sweden, which has had much better
results than any other country outside the euro area.
With each crisis, the usual suspects call for greater federalism in order to prevent the
next crisis. This time, they want euro bonds and greater sharing of the debt burden. Is
this a responsible and helpful response? And can we take steps towards federalism
without asking the people for their opinion?
As you know, the summit in Brussels was not convened at all with the aim of causing
institutional upheaval. That said, the view that Europeans need to reflect on their long-term
vision of how they want European institutions to evolve is, for me, a valid one. The
construction of Europe really started 60 years ago. Evidently, it has not yet been completed,
and it is also very clear that it is up to our democracies to take the decisions and thus,
ultimately, to the people of Europe to say what they want. Speaking as a European citizen,
and not as the President of the ECB, I think that the Europeans will go on to invent in a long
term prospective an entirely new type of confederation of sovereign states, which would not
be a carbon copy of the United States of America.
We were sold the euro area as an area of prosperity and stability and instead we get
austerity. Go figure!
Since the introduction of the single currency, the euro area has seen a growth rate per capita
that, at around 1% a year, is comparable to that in the United States, and has created even
more jobs: 14 million compared with 8 million in the USA. Not enough people know these
facts and they do not receive sufficient attention. In addition, it was never claimed that the
euro would do away with the need for good public finance management; indeed, we said
precisely the opposite. The euro area is redressing its public finances, just as the United
States and Japan must do, and as the United Kingdom has also started to do. Two things are
certain. First, everywhere in the world, whenever budgets are managed carefully, the costs of
production are controlled and the social partners act with prudence, the reward is growth and
job creation, even after the worse crisis since 1945. Second, the euro area as a whole is
faced with fewer problems than the United States or Japan, but it must take tremendous
steps to strengthen its governance.
Is speculation the big bad wolf that will devour the euro?
The euro itself is not in question. The euro is a very credible currency that has done a
remarkable job of ensuring price stability. Also, it is issued in an economic area for which the
overall results are sound compared with other ones. As far as government or corporate
bonds are concerned, the financial markets are complex and very sophisticated. Some
investors have confidence (or not) and invest (or not), and others can forward buy or sell and
speculate up or down. Market participants are thus motivated by varying degrees of
confidence, as well as by fear and greed. When serious crises arise, such as the one that we
have been in since 2007-08, they expose weaknesses as sure as x-rays show up the
skeleton inside the body. A good way of not letting speculation take hold is to identify ones
own weaknesses upfront and to correct them. In the years that preceded the crisis, countries
in particular, had a false sense of security. Unfortunately, this sentiment was not only shared
by some Europeans, but also by the whole of the international community, not to mention
many economists. Once again, the lesson that we Europeans must draw from this is to
strengthen the governance and monitoring of economic and fiscal policies. That does not
mean to say that the functioning of the financial markets does not need to be substantially
improved. At the moment, the key word for all industrialised countries is "confidence".
Yes, but it is possible to speculate on whether Greece will default.
Such a speculation would be a sure-fire way of losing money given the decisions taken last
Thursday. And let me say again, the euro, as a currency, is sound and credible, and is not
affected by the pressures on sovereign risks.
Don't the rating agencies play the speculation game?
I think that this is an important issue for financial stability at the global level. Here we see a
very small number of institutions having an enormous international influence. The patently
oligopolistic way in which the rating agencies work is certainly not optimal in terms of market
organisation. This configuration is structurally "pro-cyclical", in other words it fuels the
creation of bubbles during cyclical upturns and exacerbates the busts during cyclical
downturns. These failings must be addressed. This is easily said, and more difficult to do...
You will be relinquishing your duties this coming November. What does this mean for
you?
My professional life has been shaped by both the pursuit of long-term or very long-term
strategies such as the construction of Europe and by a series of crises. When I started my
career as a civil servant I had to deal with the first oil price shock in 1973-74, which was an
enormous blow to the whole of the industrialised world. Unfortunately, because we
responded poorly, particularly in Europe, this shock was the start of mass unemployment. I
have also lived through the sovereign debt crises in Latin America, Africa, the crisis in the
Soviet Union, the crises of the Exchange Rate Mechanism of the European Monetary
System in 1992 and 1993, and of course the Asian crisis, the bursting of the dot.com bubble
and the ongoing crisis that started in 2007-08. The truth is, I have always been living through
crises. This has led me to conclude that, in a world that is undergoing extremely rapid
transformation thanks to science and technology, the global spread of the market economy
and the fantastic progress made by China and India, it is necessary to be constantly on one's
guard and in a state of alert. I first elaborated on this view in a speech I gave in 2005 at
Jackson Hole in Wyoming, where central bankers from all around the world meet every year
on an informal basis. Back then, I explained that one of the conditions for boosting long-term
confidence was to remain visibly and constantly in a state of alert. The experience of the
most serious crisis since the Second World War has only strengthened this conviction. More
than ever, the benefit that the European Central Bank brings to Europeans is to be an anchor
of stability and confidence in a turbulent and demanding period.