Jean-Claude Trichet: Interview with Het Financieele Dagblad
Interview by Jean-Claude Trichet, President of the European Central Bank, with Het
Financieele Dagblad, The Netherlands, conducted by Mssrs Cor de Horde and Klaas
Broekhuizen on 16 November 2009 and published on 25 November 2009.
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Q. How stable is the Stability and Growth Pact nowadays, with bigger and bigger
differences between countries deficits?
A. "The Stability and Growth Pact (SGP) is more important than ever. We have a single
currency and no full fledged political federation with a full-fledged federal budget. The SGP is
an essential element, which is fully part of the overall Economic and Monetary Union (EMU).
It is the E in EMU. Sustainability of public finances in the medium term will reinforce
confidence of households and corporate business. The recovery can only succeed if we
improve confidence. "
Q. Confidence is the key word?
A. "Yes, absolutely."
Q: Does that mean the path towards sustainable deficits should be realistic, rather
than too ambitious?
A. "It has to credible, but it has to be ambitious in order to signal very clearly medium term
sustainability. If governments are not able to be convincing in their capacity to deliver fiscal
sustainability in the medium term, households and enterprises will not regain confidence."
Q. For some countries 2013 will come too soon to have their deficit under -3% GDP.
A. "First: the redressing exercise must start in 2011 at the latest. Second: taking into account
the situation of practically all countries, they have to engage in recovery programs that
should deliver significantly more than 0,5% of GDP in structural terms of improvement every
year. And in many cases more than 1%. We expect the Commission to make the analysis as
rigorously as possible and we will back its rigorous implementation of the Pact."
Q. Does that mean "one size fits all"?
A. "A few countries have been wise, sound and reasonable in the past, they are in a better
situation. The efforts for them will be relatively easy. But many others, that are in a very
difficult situation, in particular because they did not behave properly in the past, will have to
engage in an ambitious and tough recovery program. But for all the medium term goal is
clear: implement the provisions of the Pact which are the same for all."
Q. You mean deliver more than 1% deficit reduction per year?
A. "For some it is a necessity that has already been agreed upon by the Ecofin."
Q. Greece has had problems ever since the beginning of the Euro. Does that mean
SGP-sanctions are not effective?
A. "In that particular case, it's up to the Euro Group, the Commission and the Greek
authorities to first of all improve definitively the way the figures are produced, the way they
are computed, the way they are certified and stamped by the national authorities and by the
European authorities. That is essential. We must work on the basis of reliable figures. On top
of that the Stability and Growth Pact has to be applied fully and rigorously for all countries, as
I said earlier."
Q. Some economists call a loose monetary policy the real cause for the crisis. In let's
say 2005, did you see the danger of that policy?
A. "The Governing Council of the ECB has demonstrated its dedication to its mandate during
this period. We refused to decrease rates when we were called upon to decrease rates, in
the beginning of 2004 by the chancellor of Germany, the president of France and the prime
minister of Italy. In December 2005 we decided to increase rates. This decision was criticised
by ten out of twelve governments that belonged to the euro area at that time. Not by the
Dutch government, by the way. The international institutions and many economists were
calling upon us not to increase rates. In 2006 and 2007 we mentioned publicly that global
finance had to prepare for a correction due to a marked underassessment and underpricing
of risks. I was public myself in January 2007, before the start of the turbulences, expressing
the sentiment of most central bankers, who were diagnosing this underpricing of risk."
Q. Some economists say interest rates are so low for so long, that the new bubble is
being born now?
A. "The Governing Council of the ECB has always taken decisions commensurate with the
challenges we had to cope with, and quick and expeditious when exceptional circumstances
were requiring it. At the same time we have always been dedicated to our mandate and did
not hamper, in any respect, our capacity to deliver price stability in the medium term. We can
tell our 330 million fellow citizens: you can have confidence, we will deliver price stability. Our
credibility has helped us solidly anchoring inflation expectations which has also proved very
important in the crisis: we have avoided the materialisation of deflationary risks thanks to this
solid anchoring."
Q. What are the lessons learned from the last five years?
A. "Global finance was much too fragile. The lack of resilience has been paid dearly. Taking
into account the interplay between the financial sector and the real economy, we saw that the
system as a whole, financial and non-financial, was extraordinary fragile. We have to
improve everything in the system. And we should not exclude anything from the review we
have embarked on. Private sector of course, where the responsibilities are obvious and
large. Public sector as well, we have to improve the rules and regulations, the standards and
codes, the prudential regulations, the accounting rules, the auditing and I would not exclude
the improvements in the institutional framework, in particular on both sides of the Atlantic."
Q. Do you think bankers have learned their lessons?
A. "They have to understand very clearly that all that we've been doing, central banks - in
the form of non-standard measures - as well as governments, has not been done for their
'beaux yeux', but it has been done to avoid the collapse of the financial system in order to
avoid a depression of the real economy. A lot of taxpayers' money from the government is at
stake, in order to permit the bankers to continue to do their job. Their job is to finance the real
economy in the best fashion possible. It's a clear message. On bonuses, we expect all
financial institutions to apply the rules that have been worked out by the Financial Stability
Board. On top of that I would say it is not only a question of rules and regulations but an
issue of values. The financial sector must understand that it has to respect values that are
acceptable by the society at large. Your country, influenced by Calvinism. is particularly
attached to these values of measure and moderation."
Q. Do you think the economic recovery came so soon it might stop politicians taking
bold restructuring measures?
A. "No, taking into account in particular the situation of unemployment, I wouldn't say the
recovery comes too soon. That being said, this is no time for complacency. The future is not
written. It will depend on our capacity to engage resolutely in structural reforms, to draw all
the lessons from the present crisis, without accepting any taboos and to be fully dedicated to
our own responsibilities both in the private sector and the public sector."