Jean-Claude Trichet: Interview with Le Figaro magazine
Interview with Mr Jean-Claude Trichet, President of the European Central Bank, and Le
Figaro Magazine conducted by Mr Ghislain de Montalembert, 23 January 2009.
* * *
Le Figaro Magazine: On 15 February, the European Central Bank (ECB) decided to cut its
main interest rate by 50 basis points to a historical low. Is this a sign that the recession is
worsening?
Jean-Claude Trichet: I indicated, on behalf of the Governing Council, that we had observed
a further decline in inflationary pressures - linked, in particular, to a slowdown of economic
activity - which justified a further cut of our interest rate by 0.5%. Overall, in the space of
three months, we have lowered our rates by 225 basis points, which is a significant amount.
Each of our decisions is made with the will of the Council in mind; that is, to provide our
fellow citizens with medium-term price stability that is in accordance with our definition:
"below, but close to, 2%".
Le Figaro Magazine: In your opinion, have the priorities changed? After the fight against
inflation, which was brought back to 1.6% in the euro area, is it not imperative to stimulate
growth?
Jean-Claude Trichet: Price stability is a necessary condition for sustainable growth and
sustainable job creation. There is no contradiction between price stability and growth. We
have put our rates at 2% because the risks to price stability have fallen significantly and this
decision was justified in order to continue to firmly anchor medium-term inflation forecasts at
less than 2%, to avoid inflation, but close to 2%, to protect ourselves from any danger of
deflation, knowing that this risk does not exist at present in Europe. As I have explained by
recounting the work of the Governing Council, this decision supports sustainable growth and
job creation and contributes to financial stability.
Le Figaro Magazine: The ECB's resourcefulness has been a positive surprise in the last few
months...
Jean-Claude Trichet: Maybe it is the impression of journalists which has changed! You
know that we have an impressive track record of intervening vis-à-vis the refinancing of
commercial banks. When the shock of 11 September 2001 happened, it took half a day for
the ECB to decide to provide the European financial system with abundant liquidity on 12
September. The crisis, still ongoing, since 9 August 2007 led to us taking even more
impressive decisions almost immediately, for example the decision to provide the financial
system with a 24-hour loan of EUR 95 billion in the summer of 2007. This decision appears
to have strongly increased the ECB's global and European visibility. We were the first central
bank to react immediately when the international financial turbulence first appeared. Today,
the Eurosystem provides considerable support to the European financial system, since we
refinance, with full allotment and at fixed rates, the euro area's commercial banks in a week,
a month, three months and six months. This was something that was unthinkable before the
financial turbulence intensified. I would also like to underline the speed with which the public
authorities as a whole, including governments and parliaments, reacted. Together, they
showed that Europe was able to take decisions, even in the most difficult circumstances.
Le Figaro Magazine: The Financial Times named you "Personality of the year" in 2007. Do
you see this as a way of getting back at those who criticised the ECB's "psychorigidity" in the
past?
Jean-Claude Trichet: These criticisms turned out to have no basis, as we saw, and have, it
seems to me, largely disappeared. Those who systematically sung the praises of the most
accommodative monetary policies have come to realise, over the last 18 months, that this
was too simplistic a view. The ECB's Governing Council does what the Treaty on European
Union asks it to do, on behalf of 329 million European citizens in the euro area. While I was
Governor of the Banque de France, there was also a public debate on the decisions of the
Monetary Policy Council, which some 70% of French citizens approved, across all public
sensibilities. I have noticed that public support for the ECB's policy of price stability is also
very strong and is an element of trust which is important for the economy as a whole.
Le Figaro Magazine: Was the euro not responsible, in part, for inflation?
Jean-Claude Trichet: On the contrary. Over the last ten years, we have managed to
maintain a stable rise in prices of 2.2% per annum on average in the euro area. This is a
good result given the spectacular rise in the prices of raw materials and energy which has
been recorded over this period. Nevertheless, it is true that, when the euro was introduced, a
few sectors in some European economies tried to take advantage of the changeover to
increase certain prices abnormally. This led to an average rise of around 0.2% at the time of
the changeover. In the case of France, Christian Noyer explained this phenomenon, which is
insignificant in the life of the euro thus far, outstandingly well. It has become clear that we
have done what has been necessary to guarantee price stability in the euro area. We will
have very low inflation for some months in the course of 2009, and I already predict some
people saying to us that it will be too low! This is a result of the fall in oil prices, as it was the
high inflation in 2008 which resulted from their rise.
Le Figaro Magazine: The euro celebrated its ten-year anniversary on 1 January 2009.
Without it, where would we be?
Jean-Claude Trichet: The euro is evidently an advantage for those democracies that have
chosen to adopt it. It has proven its stability, its resistance to shocks and its resilience in the
face of financial and economic turmoil. Once again, I would say, as we have faced many
tests over the last ten years: the bursting of the internet bubble, the Asian crisis, the raw
materials and oil price shock... In ten years, the euro has been a key factor in achieving the
Single European Market and has provided a shield against international turmoil.
Le Figaro Magazine: Is the euro, therefore, a total success?
Jean-Claude Trichet: It is a big success. We have given European citizens a single
currency which is in line with what was promised: a currency which retains its value, which
inspires confidence, a stable currency, at least as stable as the legacy currencies. Ten years
ago, many believed this promise could not be fulfilled.
Le Figaro Magazine: In terms of job creation, has the euro kept its promise?
Jean-Claude Trichet: It is not correct to say, as some have done, that the euro has acted
against job creation. On the contrary, in the first ten years of the euro, the number of people
in work increased by approximately 16 million, which is at least 3 million more than in the
USA in the same period. We have also created many more jobs than we did in the decades
preceding the euro, in Europe as well as in France.
Le Figaro Magazine: Can the euro hope to one day take the place of the dollar as an
exchange and reserve currency?
Jean-Claude Trichet: The single currency has not been created to compete with the US
dollar, nor has it been created to replace it. On the contrary, I am convinced that active and
confident monetary cooperation with the United States is important for the stability and
prosperity of the world today. I strongly disagree with those who say that the euro has been
created to compete with the US dollar. Let's be clear: the ECB is not campaigning for the
international use of the euro. We are letting the economic and financial players make up their
own minds, without trying to influence them.
Le Figaro Magazine: With regard to the crisis, some European countries - such as France -
today allow themselves discrepancies, notably budgetary discrepancies, with the Maastricht
criteria. Do you blame them?
Jean-Claude Trichet: An area with a single currency which unites 16 sovereign states, each
with their own budgetary policies, must respect the principle of a close collegial coordination
and monitoring of budgetary policies, in which the Commission plays an important role. The
Stability and Growth Pact has been revised in the last few years and European countries
agreed unanimously on the new rules. The ECB requires that these rules are respected,
especially since they authorise, given the exceptional circumstances that we are currently
experiencing, a certain room for manoeuvre for those countries which have the possibility to
do so. Our recommendation is therefore extremely clear: let us respect the Stability and
Growth Pact and know how to use all its room for manoeuvre... but only its room for
manoeuvre.