Jean-Claude Trichet: Laudatio for Hans Tietmeyer
Speech by Mr Jean-Claude Trichet, President of the European Central Bank (ECB), at
Münster City Hall, Westphalia, 26 March 2010.
* * *
Lord Mayor,
Mr Hillebrandt,
Dear Hans,
Ladies and gentlemen,
It is a great pleasure to be here giving this speech in honour of my dear friend Hans
Tietmeyer. The Westfalen-Initiative has made an excellent decision in inducting Hans
Tietmeyer and Freiherr vom Stein (1757-1831) into the Westfälische Ehrengalerie
[Westphalian Gallery of Honour].
Induction into the Westfälische Ehrengalerie is a means of honouring prominent
Westphalians for their services to the region. Of course, the achievements of Hans
Tietmeyer, like those of Freiherr vom Stein, can be seen far beyond Westphalia.
The historical significance of this city hall also extends way beyond Westphalia. It has played
host to pivotal events in the history of Europe, having witnessed the negotiation and
conclusion of the Peace of Westphalia more than 360 years ago. The Treaty of Münster and
the Treaty of Osnabrück formed the basis for the establishment of peace in Europe following
the Thirty Years War.
Hans Tietmeyer has also participated in pivotal events in Europe's history. Indeed, he played
a decisive role in laying the legal foundations for Europe's Economic and Monetary Union.
The introduction of the single currency represents the greatest achievement to date in the
history of European integration - a process which has ensured six decades of peace and
prosperity in Europe.
Today, Europe faces further pivotal decisions. The global financial crisis has resulted in
major challenges for Europe's economic and fiscal policies. I will talk more about these
issues at the end of my speech.
I had the pleasure of spending many years working with Hans - particularly between 1987
and 1999. Initially, Hans was Secretary of State in the Ministry of Finance and I was Director
of the Treasury. Later, our periods as the governors of our respective central banks
coincided. When the ECB was established, we both became members of the Governing
Council of the ECB. It was Hans who proposed not using members' countries of origin to
determine the seating plan for the Governing Council's meetings and instead using
alphabetical order to decide who sits next to whom. After all, the members of the Governing
Council are there to represent the euro area as a whole.
But maybe Hans just wanted to sit next to me. Because there is not much that fits between
Tietmeyer and Trichet, also in the alphabet. I always greatly appreciated working with him,
and I learnt a lot from him about Germany.
Hans Tietmeyer's period as President of the Deutsche Bundesbank coincided with
turbulence in the international financial markets. By comparison with the recent global
financial crisis, the Mexican crisis and the Asian crisis were less dramatic from a European
perspective. Nevertheless, Hans Tietmeyer recognised at an early stage the threat that
unstable financial markets could pose to a globalised world economy, and it was on his
initiative that the Financial Stability Forum was established in 1999. Ten years later, one of
the responses to the global financial crisis was the enhancement of the Financial Stability
Forum, which became the Financial Stability Board. The number of participants was
increased and its remit was extended. The Financial Stability Board has thereby become a
key institution in the reform of the international financial system.
Above all, though, Hans Tietmeyer's time at the Bundesbank was marked by preparations for
Monetary Union. His tireless support for rules ensuring the stability of the single currency has
proved to be entirely justified. The euro area's 330 million or so citizens are now benefiting
from the fact that the currency in their wallets is as solid as the Deutsche Mark used to be
("so hart wie die D-Mark").
The euro - a stable currency
The euro is just as strong as the most stable of its predecessors. The ECB has ensured price
stability in the euro area. At the end of this year, the average inflation rate since 1999 will, in
all probability, be around 1.95% - i.e. just under 2%.
Thus, the euro need not shy away from comparisons with the Deutsche Mark. The average
inflation rate in Germany in the 1990s prior to the introduction of the euro was 2.2%. In the
1980s it was 2.9%. Many people still don't want to believe it, but the euro has not increased
inflation.
However, price stability is by no means the only advantage that Germany enjoys as a result
of Monetary Union. Without the euro, the financial crisis would certainly have triggered
additional turbulence on the currency markets, also causing further damage to the German
economy.
People like Hans and me who were directly involved in the EMS crisis know what they are
talking about. In his book "The euro challenge", his memories of the events of 1992 and 1993
are headed - appropriately, I think - "monetary earthquake" and "strong aftershock". The
successful resolution of that crisis is another one of Hans Tietmeyer's lasting achievements.
Europe's monetary integration could have ended in failure as a result of that episode.
Price stability is, without a doubt, the best contribution that central banks can make to
people's well-being. Nevertheless, many people virtually don't take much notice of their
central banks' operations in normal times. Furthermore, the mechanism for the transmission
of monetary policy decisions is very complicated. This makes it all the more important for
people to be able to rely on the delivery of price stability.
In the case of the ECB and the Eurosystem, they can rely on it. Price stability is our primary
objective. The Governing Council has defined price stability as increases in the Harmonised
Index of Consumer Prices for the euro area of below 2% over the medium term. The
Governing Council has, in addition, specified that it strives for increases of "below, but close
to, 2%".
With the aid of this quantitative definition, we have succeeded in firmly anchoring inflation
expectations at a low level. This has been of great assistance to us during periods of both
increasing and decreasing inflationary pressures.
The central banks have worked hard for those low inflation expectations, which have been
achieved primarily as a result of decades of credibly following stability-oriented policies.
Those inflation expectations are of fundamental importance for the success of monetary
policy. It would therefore be a very serious mistake to aim for a higher level of inflation in the
future. Consequently, as I have stressed on a number of occasions, I strongly oppose this
must
idea. Pandora's box remain shut. The weakening of our price stability objective is out of
the question.
Price stability benefits us all. It safeguards purchasing power and the value of savings, and it
prevents the arbitrary redistribution of wealth. Only in the presence of price stability does the
price mechanism function in an efficient and transparent manner. It is the main instrument for
the steering of our market economy.
Independence guarantees a stability-oriented monetary policy
An important requirement for the delivery of price stability is the independence of the central
bank. We know this as a result of the painful learning processes that central banks have
undergone in the past. Germany was one of the first countries to have an independent
central bank. I myself was Governor of the Banque de France when it became fully
independent. Central bank independence was "Europeanised" and became the model for the
ECB. On 1 January 1994, more than 16 years ago, I saw for myself the enormous difference
that it makes to preside over a fully independent institution.
It has now long been demonstrated - both theoretically and empirically - that central banks
are better able to ensure low and stable levels of inflation when they are independent. Of
course, independence does not mean arbitrariness. Instead, that independence is tied to a
concrete objective. And independence requires accountability. In the case of the ECB, its
mandate specifies that the delivery of price stability is its primary objective.
The quantitative definition of price stability does not just contribute to the anchoring of
inflation expectations. It also provides people with an objective yardstick with which to judge
our work.
The mandate and the independence of the Eurosystem are enshrined in Europe's treaties.
These are quasi-constitutional in nature. Monetary policy has been removed from the remit of
national politics. At the same time, the ECB - like other central banks - cannot complain that
it has lacked advice from politicians. This is something of a tradition when it comes to
independent central banks. Don't forget Adenauer's famous "guillotine speech" in 1956.
Half a century later, Heads of State or Government attempted - again, unsuccessfully - to
influence the monetary policy of the ECB. When growth weakened in 2003 and 2004 the
then leaders of the three large euro area countries demanded an instant reduction in interest
rates. The Governing Council refused to reduce rates, and I was proud to refer to the
Adenauer precedent. Later, at the end of 2005, many governments warned against
increasing interest rates. We did indeed increase rates, the ECB stuck to its mandate, and
today nobody disputes the fact that our decisions were correct. At the time, however, we
were under considerable pressure. We withstood that pressure.
In most cases, criticism of independent central banks is sparked by restrictive decisions.
Expansionary policies are rarely criticised. This shows that many pressure groups, as well as
politicians, who often are under short-term pressure, don't think in terms of the time horizons
considered by central bankers.
The ECB is independent. It does not allow any government, institution or lobby to influence
its monetary policy decisions. The citizens of Germany and the rest of Europe can rely on us
to continue to deliver price stability in the years to come. Our defence of our mandate will be
just as resolute as it has been in the first 11 years of Monetary Union.
A monetary policy that pursues short-term objectives is doomed to failure. However, this
focus on the longer term means that those independent central banks also stand in contrast
to the short-termism of the financial markets. The global financial crisis is also fundamentally
a result of short-term thinking.
Challenges arising from the financial crisis
The handling of the financial crisis and its economic consequences has been a great
challenge for us all. Governments and central banks have had to intervene on a massive
scale in order to stabilise the financial system and the real economy.
The monetary policy measures adopted by the Eurosystem have allowed inflation
expectations to be kept stable even during the crisis. From the very beginning, our
interventions were designed in a way that allowed us to unwind them easily as soon as
conditions improved. At no time did we lose sight of our price stability objective.
Countries' budget deficits have risen substantially on account of the crisis. Rising debt levels
do not just bring with them the potential for greater conflict between fiscal and monetary
policy. Above all, they also place a burden on the sustainability of public finances in the
countries in question. It is therefore in the interests of each and every country to return to
sound public finances as quickly as possible.
In the current circumstances, where Europe faces pivotal decisions, it is more important than
ever to recognise that a prosperous union requires determined action by all. The most
important issue is that Europe's policy-makers live up to their responsibilities. As I mentioned
yesterday, the Governing Council of the European Central Bank has always stressed the
need to preserve and reinforce peer surveillance inside the euro area, to strictly apply the
Treaty provisions and the Stability and Growth Pact, and to have the best functioning
possible of the Commission and of the Eurogroup. Particularly as regards the government
members of the Eurogroup, the ECB's Governing Council has always considered that it was
important that they would, as a college, live up to their very important responsibilities as
regards fiscal policies, the monitoring of relative competitiveness and structural reforms. I am
therefore pleased that the Heads of state and government of the euro area could work out a
solution, implementing their earlier declaration to "take determined and coordinated action, if
needed...", which maintains the lead responsibility of European policy makers.
Monetary Union in Europe is far more than a monetary arrangement. As Hans Tietmeyer
said many years ago, the Monetary Union is a community that shares a common destiny.
And we should not forget that we are also a community of values.
Price stability is the best contribution that central banks can make to the stability of the
financial system. Price stability is even a necessary condition for financial stability. However,
price stability is not a sufficient condition. Many people share responsibility for financial
stability, and all must live up to that responsibility.
The crisis has revealed weaknesses in the institutional framework. Thus far, it has not been
sufficiently possible to encourage the Member States to implement policies that are in line
with our benchmark. Fiscal policies, wage policies and structural policies must conform to our
stability target of inflation of just under 2%. I am convinced that we will find ways of achieving
this.
Conclusion
Before I finish, I should like to recount a short anecdote.
Once, while Raymond Barre was Prime Minister [1976-1981], he asked me, given that I
worked at the Treasury, whether I often travelled to Brussels. In that case, he said, I must
meet Hans Tietmeyer. He said: "He is very influential, and he is a tough negotiator. If you
have issues to discuss with him, good luck!" That was a considerable compliment. Germany
and Europe have much to thank Hans Tietmeyer for. He was resolute in ensuring that the
euro would be a stable currency. Today, after having had to cope with the worst financial
crisis since World War II, we can say with confidence that the euro has been a stable
currency since its inception and that the euro area is a stable community. As I said earlier,
Hans Tietmeyer is the author of a book entitled "The euro challenge". I am certain that the
euro will be equal to that challenge.
Thank you.