Jean-Claude Trichet: Joint interview with Corriere della Sera, Helsingin
Sanomat, De Volkskrant, Diário de Notícias
A joint interview of Mr Jean-Claude Trichet, President of the European Central Bank, conducted on
19 June 2006 by Ms Marika de Feo, Corriere della Sera, Mr Juhana Rossi, Helsingin Sanomat, Mr
Olav Velthuis, De Volkskrant, Mr Sergio Anibal, Diário de Notícias, published on 27 June 2006.
* * *
1) Mr Prodi, Mrs Merkel and Mr Chirac think that an alliance between Euronext and Deutsche
Boerse, instead of a merger with the New York Stock Exchange, is necessary in order to
strengthen financial markets in Europe. Do you agree?
Answer: As you know we have no say and we do not participate in the decision, which has to be
prepared by the appropriate boards of directors and shareholders.
2) Why do you prefer the European solution?
Answer: All things being equal, a personal preference coming from me for a European solution would
appear natural, wouldn't it? That being said, we are not protectionist, the European economy is and
must be an open economy.
3) There seems to be no evidence now of a stronger synchronisation of the 12 euro area
economies when it comes to growth.
Answer: As far as the business cycle is concerned, the level of synchronisation has improved over the
last 20 years, and recent analysis suggests that this level has never been that high for the euro area
economies. Furthermore, dispersion of growth in the euro area is not different from the magnitude of
equivalent dispersion between growth in the various States in the United States. So it seems to be
characteristic of very large economies. But we have persistent differences in the long-term trend
growth and in the growth potential of the various euro area economies, which can be explained by
factors such as the level of structural reforms and demographic developments. It is this persistence of
trend growth differences which seems to be the characteristic of Europe.
Let me also stress that price stability is not only our primary goal but also a mean to attain sustainable
growth and job creation.
4) Is this also true also as far as inflation is concerned?
Answer: We also have a level of dispersion of inflation from country to country which is similar to that
seen in the United States. But again it is the persistence of these differences which is the European
characteristic. That is the reason why when we observe a) that unit labour costs - which is the major
cost parameter for inflation - are augmenting in a country, year after year, and that they are above the
average of the euro area, and b) that the level of cost competitiveness of the economy concerned is
starting to create difficulties, for instance that the external account is deteriorating vis-à-vis the
average of the euro area, then it is time, in our opinion, to take appropriate measures to bring the unit
labour costs below the average and catch up on the lost competitiveness.
5) At Governing Council meetings, have you discussed the situation in countries like Portugal
and Italy - with high levels of debt and very low growth - or the Netherlands and Finland - with
low inflation?
Answer: Just like the Federal Reserve, we have to look at the average of our vast continent. And we
are responsible for price stability in the euro area in terms of the average inflation for our 313 million
fellow citizens of the euro area. But the countries concerned are responsible for the differential
between their country's inflation and the average. And we examine as carefully as possible the
evolutions and relationships inside the euro area.
6) Which measures would improve competitiveness in the euro area, and specifically in Italy
and Portugal? Maybe, for instance, cuts in labour and/or administrative costs?
Answer: It is important, not only for Italy and Portugal, but for all economies of the euro area, to have a
good understanding and a very attentive examination of the evolution of their own cost
competitiveness, of their labour costs including their labour productivity progress, in order to be able to
take if and where necessary the appropriate measures to regain lost competitiveness if there is a
documented loss of it. Structural reforms are equally of the essence to foster competitiveness.
7) How do you permit unit labour costs to move at a speed which will make it possible to catch
up on lost competitiveness?
Answer: Labour productivity is certainly decisive. In this domain structural reforms make it possible to
extract improvements from new technologies and processes. It is equally important to improve unit
labour costs through moderation in nominal wages.
8) The German Chancellor Angela Merkel has dealt with the budget deficit through tax
increases. Should other countries follow suit?
Answer: What counts is the final goal, which is the rigorous implementation of the Stability and Growth
Pact. If and when it is necessary to redress the situation, it is pure arithmetic that you have first to
reduce spending and, if a gap remains, increase tax receipts. We would certainly recommend cutting
the level of public spending in economies that have a high level of public spending in proportion to
GDP. But we can not rule out the possibility of increasing taxes.
9) Even if it happens at the expense of growth?
Answer: In the opinion of the Governing Council, which includes also Mario Draghi (Banca d'Italia),
Nout Wellink (De Nederlandsche Bank), Vitor Constancio (Banco de Portugal) and Erkki Liikanen
(Suomen Pankki), sound fiscal policies are not hampering growth but fostering growth. We believe
that, if the Stability and Growth Pact is not respected, what we would lose in terms of the confidence of
households, entrepreneurs and the economy in general would decrease growth more than the illusory
expansive impact of a fiscal deficit.
10) And would you agree with a country, for instance Italy, raising taxes but putting off cutting
labour costs?
Answer: We have two different questions there. One is if an economy has lost a certain degree of cost
competitiveness and has to regain it. And to regain it at the level of enterprises and of the productive
sector, it is decisive to rely upon unit labour costs that would augment less than the average of the
euro area in order to regain cost competitiveness. That is the first remark, which is always true in any
circumstances. Regardless of whether you have budget problems or not, you have to be sure that you
are progressively regaining an appropriate level of cost competitiveness.
11) What about the second question?
Answer: Then you have the second question associated with the budget situation: the goal is very
clearly the rigorous implementation of the Stability and Growth Pact. And the way you do it logically is
by reducing public spending as a priority and then by increasing taxes if and when needed.
12) Are you concerned that Italy and other countries with difficult deficit and debt positions
may put the euro at risk?
Answer: No. The euro is a very solid currency of which we are ourselves the guardians. But good
policies at national levels would augment growth, prosperity and job creation.
13) Are you concerned that, now that growth is picking up, some countries have budget
deficits exceeding the 3% limit?
Answer: We should not repeat the mistakes of the past, when, even in good periods, insufficient
attention was paid to budgetary soundness, and thus a very high price was paid when we were back
in a more difficult period in the business cycle. That is the reason why we call for a rigorous
implementation of the Pact and encourage the European Commission in its efforts.
14) In the past, you have been quite critical about a lack of compliance with the Stability and
Growth Pact. Do you think that these fears still arise?
Answer: We have said very clearly in the past that we would not recommend changing the corrective
arm of the Pact. After the unanimous decision of the executive branches to agree on a new wording of
the Pact, we said that "we call on the Commission and the governments to implement it rigorously.
15) Recently equity markets in many euro area countries have seen their value diminish by
around 10%. How is this phenomenon related to the interest rate hikes? And do you expect this
to have an impact on consumer demand?
Answer: I will not comment on the daily ups and downs of the stock markets. That is like looking at the
sea and commenting on the waves and the tide. If you consider the picture in the context of a longer
period, then the situation is very different. What we do in the Governing Council is to ensure price
stability in the medium and long term, which is also a prerequisite for financial stability.
16) So the influence of future rate hikes might have on equity markets is not a concern at all
when you make a decision?
Answer: Price stability is our primary goal as you know and also fosters financial stability.
17) In the last stability report the ECB wrote that hedge funds increasingly present a risk to the
stability of the economy. Can you elaborate on that?
Answer: Hedge funds have expanded considerably rapidly in the most recent period of time. When we
look at them from the financial stability standpoint, we think it is important to have a full understanding
of the main reasons behind this extraordinarily rapid expansion, and to handle appropriately the risks
involved with hedge funds. This handling is operated through the counterparties of the hedge funds,
namely banks, which are themselves under the surveillance of the banking authorities. It is through
this cautious monitoring by the banks of their risks with hedge funds that we expect them to be
disciplined. We have to check permanently whether this channel of introducing discipline in the hedge
funds is functioning correctly or not. In this respect, we still have a lot of work to do within the ECB and
the Eurosystem, and certainly at the global level. As you know, it is also one of the major issues which
is examined by the Financial Stability Forum at a global level.
18) To what extent does this risk influence your rate decisions?
Answer: Again, our responsibility is price stability which is itself a precondition for financial stability.
19) Do you expect further regulation of hedge funds to be necessary?
Answer: I think that more work has to be done, but what we do need, directly or indirectly is more
transparency. But any decision in this domain has to be made at global level.
20) The Bank for International Settlements (BIS) published its annual report yesterday. In its
conclusion, the report says that "it could be that monetary policy should have been tightened
more, and earlier". So basically the BIS is saying that the ECB, together with the other central
banks, started its tightening cycle too late and has been too modest with its interest rate hikes.
How would you assess this implied criticism of being too accommodative in monetary policy?
Answer: To say that the ECB has been too complacent would be very paradoxical! We resisted a lot of
advices, which we were given both by academics and executive branches. In 2004 I had calls during
the same week from the heads of three important countries, economically speaking, in Europe, calling
for rate decreases. As you know, we did not act on that. We maintained our rates at 2% because we
concluded that it was necessary to ensure price stability and be faithful to our mandate.
21) So you are saying that the ECB did not start too late and has not been too modest in its
current tightening cycle?
Answer: We certainly resisted a lot of pressures in 2004 and, when we decided to increase rates, we
did that very much against a number of advices we were receiving from various circles, as well as from
a number of international institutions, such as the OECD and the IMF. We raised rates at the right
moment and we took the right decisions without complacency against a lot of advice to the contrary.
22) Moving on to the second part of the analysis by the BIS. The report says that now that the
central banks have been too slow to act, continued tightening of monetary policy could harm
the economy and could, to quote, "have negative effects on global growth and employment".
Will the ECB do as the BIS suggests and give, to quote, "a more measured monetary
response"?
Answer: The BIS is merely reflecting the debate, particularly the academic debate. Ex ante you are
called on not to increase rates. Ex post you are reproached for not having done that earlier. So, again,
we will continue to do what is necessary. Our responsibility is very clear: to ensure price stability and
be credible in ensuring price stability. It is what the Treaty itself and I would add that it is what our 313
million fellow citizens as well as investors and savers in Europe and in the rest of the world are
expecting from us.
23) So you are continuously as vigilant as a hawk seeking its prey?
Answer: I leave the responsibility for this metaphor to you. I would say the Governing Council is
permanently alert. We have to be. In several speeches I have mentioned the concept of "credible
alertness". It is the mark of our institution to be constantly alert. We, as you might have noted, never
pre-commit ourselves unconditionally to any particular course of action, whatever happens. We do
what is necessary when it is necessary.
24) Does the unwinding of the global imbalances such as the deficit on the US current account
argue for a more measured monetary response?
Answer: The possible disorderly unwinding of global imbalances is calling for all partners concerned to
do their homework. And that homework has been very well documented, particularly at the global
level, at G7 meetings.
25) What can Europe and the United States do?
Answer: Europe should implement structural reforms to elevate the level of its growth potential. The
continent has a lot to gain in doing that, growth, more prosperity and more job creation. The United
States has to address its fiscal imbalances and deal with the issue of the low level of savings in the
overall US economy, which is a major issue. And it is also true for Japan and the rest of the world: we
all have homework to do in order for the global imbalances to unwind in an orderly way. I think we
have done a very good job in the past, and we will continue to do so.
26) Has the risk of a disorderly global unwinding increased or decreased?
Answer: There has been and there is an important risk for a number of years. That is absolutely clear.
Our working assumption is that there will be an orderly unwinding, because we trust that homework
which has to be done will be done. And we call on all partners to be responsible and consistent.
27) One specific imbalance is the housing market bubble. Do you think that the situation has
improved or worsened in the last few months?
Answer: It is clear that this is a domain in which there is undoubtedly a lot of diversity in the euro area,
as is also the case in the United States. For example, you might have real estate dynamism in Florida,
whereas in Massachusetts things are not going that fast. We have to accept that a very vast
continental economy might have different features. That being said, at the aggregated level of the euro
area it is clear that we have dynamism in outstanding credit for housing, and dynamic price increases
in various available real estate figures, which are a cause of tension and that we are monitoring
carefully.
28) How is this influencing your monetary policy decisions?
Answer: I have mentioned several times that, in the Governing Council's decision-making, we have
paid particular attention to real estate developments and we were impressed by the dynamism of the
counterpart of the monetary aggregates which is the financing of housing. This was one among many
other elements that we took into consideration when we increased rates.
29) You mentioned the advices that you got from executive branches and the IMF. To follow-up
on that, two months ago you were sent a letter by Mr Juncker asking for more contact with the
ECB. You have already said in the press conference that there is enough contact. The
executive branches kept asking for rate decreases and now they are asking you to pay
attention to the euro exchange rate? Do you think that the executive branches pay enough
attention and respect to the central bank's independence?
Answer: First, let me tell you that I have great esteem for Jean-Claude Juncker, who has a very
important responsibility in chairing the Eurogroup. Second, central bank independence is guaranteed
by the Treaty. In that respect, independence is guaranteed more nowadays than it was before under
national legislation. I do not see any dispute on that. I trust that because the entire world, Europe and
European households know and see that we are independent. We have a very high level of credibility.
That, I have to say, explains to a large extent why we are anchoring solidly inflation expectations. I
would say the sequence is: independence, which is crystal clear and undisputed, triggers credibility,
which in turn triggers the solid anchoring of inflationary expectations and permits us to deliver price
stability. That is why we are so profoundly attached to independence.
30) Mr Juncker rebuffed you very strongly last week when he said "I am Mr Euro for my
competencies", leaving you saying you are Mr Euro for your competencies. Do we have two Mr
Euros in Europe?
Answer: You are not at all quoting him exactly and I do not share your appreciation of what he said.
The euro is a currency which is issued by central banks. The Eurogroup is the college of Ministers of
Finance. Presiding over all Ministers of Finance of the euro area is a considerable responsibility. As far
as I am concerned, on behalf of the Governing Council, I sign the euro banknotes.
31) But he said that he had responsibility as far as the competence of the finance ministers
goes.
Answer: Of course and it is an extremely important responsibility.
32) So we have two Mr Euros?
Answer: No. I have already responded to that question at the last press conference.
33) Is the fact that stock markets heavily adjusted downwards recently a signal that economic
growth is not doing well?
Answer: I would say that, on growth, as you know, we in the Governing Council extract from all
information and signals that we are receiving what we would call the trend growth as we see it. That
trend growth that we are extracting from those signals indicates that we are around potential in the
euro area. This analysis was made at the end of 2005. We increased our rates in December 2005 on
the basis of our economic and monetary analyses. In the economic analysis, it was clear for us that
growth was reaccelerating and going progressively around potential. We maintained this analysis
when we had somewhat disappointing information on growth in the last quarter of 2005, which we
attributed to short-term volatility on a quarter-on-quarter basis.
34) Did you maintain this sentiment also at the most recent Governing Council meeting in
Madrid?
Answer: We maintained this sentiment in Madrid. We consider, again, that all the information we have
from both surveys and from all other figures have to be replaced in a medium-term context and that
they confirmed that we were around trend potential.
35) Now that Jürgen Stark has taken over from Otmar Issing, the fears of smaller Member
States that the larger ones would claim their own seats in the ECB's Executive Board seem to
be confirmed. Do you think this fear is justified?
Answer: This is the responsibility of the executive branches. I will ship that back to the Council. What
we call for ourselves is full and appropriate implementation of the Treaty, which calls for persons of
exceptional quality in the field of monetary and financial matters. And I have to say that my colleagues
in the Executive Board are all of exceptional quality as it has been recognised by the European
Parliament.
36) In your prepared statement after the last monetary policy decision, you dropped the word
"vigilance" in characterising inflation risks. The markets have interpreted this as a signal that
interest rates will not be raised in July, but maybe at the beginning or end of August.
Answer: I will stick to what I said on behalf of the Governing Council in the last press conference in
Madrid as well as in my hearing at the European Parliament last Wednesday.
37) The Finnish banker Bjorn Wahlroos suggested in an opinion article published in the
Financial Times on 6 June that Turkey and other EU candidate countries be allowed to join the
single currency. Can you comment on the specific arguments expressed in this article? And in
more general terms, has the euro become strong enough to unilaterally replace the national
currencies of weak economies, in the same way that the US dollar has replaced the national
currency in some poor countries?
Answer: If a particular country wants to unilaterally adopt the euro, it is up to that particular country. It
would be the same with the US dollar or any other currency. But the Governing Council of the ECB is
not committed; we do not do anything ex ante to facilitate this decision. It is really the responsibility
and risk of that particular country. And this country has to realise that this would not be a way to
bypass the Maastricht Treaty. If a country is a Member State of the European Union and wants to
enter in the euro area then this country has to prove the stability of its national currency through the
participation in the Exchange Rate Mechanism II.
38) Could you tell us the individual salaries of the Executive Board members of the ECB?
Answer: The total amount for the Executive Board was EUR 2.1 million in 2005. There are six of us on
the Executive Board.
39) Why only the aggregate figure? Why not the individual figures?
Answer: Because a decision has been taken on this by the Executive Board and the Governing
Council, and we are sticking to that.
40) Do you think you will at some point publish the minutes of the Council meetings, maybe
without the names of the governors?
Answer: It was our decision - and we are very proud of that - to introduce for the first time in the world
the display of the "Introductory Statement", which is an overall diagnosis of the situation as viewed by
the Governing Council. It is presented immediately after the monetary policy decision. This was a first.
No other central bank had done that before. We also have a press conference, which is proof of our
full transparency, which remains exceptional among the major central banks of the world. We consider
that what we are producing in the Introductory Statement and in the questions and answers in the
press conference delivers immediate transparency. Until now, the Governing Council has not wanted
to publish the individual votes of its various members. We consider that we are responsible for the
single currency in 12 - and in the immediate future 13 - sovereign states. That leads us to think that
what we have to display is the unity of the collège, the unity of the Governing Council, which is
characterised by a very strong sense of team spirit. As you know, we all stick to the position which is
taken by the Governing Council. We are very committed to the decision taken. I have explained that to
the European Parliament and, through you, to the people. I think this is becoming more and more
understood.
41) Would you consider in the future publishing the minutes even without the names?
Answer: The publication of the Introductory Statement immediately after the Governing Council gives
the information that you are looking for. This is the reason why a priori we don't envisage publishing
the minutes.