Jean-Claude Trichet: Interview in Il Sole 24 Ore
Interview with Mr Jean-Claude Trichet, President of the European Central Bank, in
Il Sole 24 Ore, conducted by Mr Beda Romano and published on 9 April 2010.
* * *
Il Sole 24 Ore: Greece is in dire straits as it struggles with a huge public debt and a fall in
competitiveness. Some market players and newspaper commentators see Italy as being the
next in line to experience a financial crisis in the euro zone.
Trichet: Of course, Italy is not at all in the same situation of Greece. Your country has shown
resilience in this difficult period. In particular it was able to contain its yearly budget deficit
and it has committed to get back to a sustainable situation according to the European rules.
The ECB strongly encourages it to implement rigorously this programme. This said, the
current crisis has demonstrated that all 16 countries of the euro zone must work hard, in a
determined and efficient way, in order to make their economies more flexible and elevate
their growth potential thanks to determined structural reforms. Improving labour productivity
in particular is good for export growth and job creation. If this had been done more efficiently
in the last years better results would have been attained in Italy as well as in the euro area as
a whole.
Il Sole 24 Ore: The EU plan to help Greece relies on bilateral aid from EMU countries and
on the involvement of the International Monetary Fund. The ECB was clearly against the IMF
participation. What do you make of the EU plan?
Trichet: I was not against the IMF involvement in itself. I was against the involvement of the
IMF alone. I have always been in favour of the maximum level of responsibility exerted by the
governments of the euro area as is prescribed by the Stability and Growth Pact. The pact is
at the very heart of EMU: it calls for member countries to assess and judge the fiscal policies
of their peers; this peer's surveillance can impose sanctions. In the days preceding the EU
meetings, I called all governments to live up to their treaty responsibility and to the provisions
of the Stability and Growth Pact which is essential for the EMU to function well. From this
point of view, the declaration of the euro area Heads of State or Government is appropriate.
It is also a good and workable solution.
Do you expect it will be used?
Il Sole 24 Ore:
Trichet: At this moment in time I don't expect this mechanism to be necessary. Greece
should proceed with its recovery program in a very determined way as committed in front of
the Eurogroup.
Il Sole 24 Ore: Is a default of Greece a distinct possibility as some commentators seems to
expect?
It is not an issue, taking into account the decisions taken by the Greek government
Trichet:
to reduce the public deficit and the statement by the euro area Heads of State or
Government.
Il Sole 24 Ore: Will the current crisis suggests a slowdown of the EMU enlargement
process?
Trichet: Participating in the euro zone requires from all member governments sound fiscal
policies, a sound monitoring of production costs and structural reforms. Today's difficulties
have shown that a bad management influences negatively all participants, while a good one
is positive to all, given how our economies are closely intertwined because of the single
currency. As I said before, peer pressure is a crucial aspect of the euro zone functioning and
it has a profound economic rational and legitimacy. Therefore it is also true that to enter the
euro zone there must be an overwhelming sentiment within society that the country is
preparing to share a common destiny with the other members. This calls, in my opinion, on
newcomers to have a clear bipartisan agreement on the desire to join EMU.
Il Sole 24 Ore: In a certain sense participation in the euro area must have both a
multinational and a multipartisan framework.
Trichet: That's correct. We are participating in an endeavour of great historical importance.
One cannot jump in and jump out of the euro area as one hops on and off from a bus.
Participation in EMU commits the destiny of a country. At the start there were 11 member
states; today we are 16. Nine other countries have no "opting out" clause and are supposed
to enter the euro area when they meet the criteria. We will see what happens. Needless to
say that any country that seeks to join EMU will have to fulfil all the Maastricht criteria not
only for one year but also on a sustainable basis.
How do you judge the mood in the countries that are queuing to enter the
Il Sole 24 Ore:
euro area? Do you see a broad acceptance of the idea that EMU commits the destiny of a
country?
In some cases there is a clear and broad political consensus to join EMU. In others
Trichet:
there is not. In any case I consider that you have to judge the process through the lenses of
history. This said, I do believe that all EU institutions and governments should point out the
euro area's meaning in terms of sharing a common destiny. More specifically, we all must
understand that we have to fully accept peer surveillance to preserve the good functioning of
our monetary union.
What about Germany: Convincing the Federal Republic to help Greece was a
Il Sole 24 Ore:
long and difficult process. Do you think that Germany believes in the common destiny
created by the euro?
Trichet: I trust that all EMU countries are aware of this fact. And I trust the Germans as well
as the Italians, the French, the Spanish, the Dutch and all other fellow citizens were all aware
of this aspect when they joined EMU. By the way Germany demonstrated how attached it is
to the single currency when it argued in favour of the Stability and Growth Pact, which is
precisely based on peer responsibility and peer pressure and is a vivid illustration of how our
destinies are interconnected. Therefore, yes, I believe that Germany is fully aware of the fact
that we are sharing a common destiny. Remember in the run up to the Maastricht treaty: both
Helmut Schmidt and Helmut Kohl were at the forefront of European integration with their
peers, following in the footsteps, in particular, of Robert Schuman and Alcide De Gasperi.
Il Sole 24 Ore: Regarding Germany, the French finance minister did criticize its economic
model based on exports rather than internal demand, pointing out that its partners cannot
count sufficiently on German imports. Are you in agreement with Christine Lagarde?
Trichet: No, and for a number of reasons. Firstly, had Germany not increase its
competitiveness in the first 11 years of EMU by keeping its costs and inflation under control,
the euro area as a whole would have had the threat of higher inflation and therefore a
tougher monetary policy. Secondly, Germany, with a large current account surplus, is
financing the current account deficit of other countries members of the euro area. Thirdly, the
Federal Republic is a major world competitor in sectors such as machine tools and industrial
equipment. Its global competitiveness is a major asset for the euro area given how closely
intertwined EMU countries are. Therefore, I would point out to all those who argue in a
similar fashion that what looks as a disadvantage for the euro area as a whole from a specific
angle is in reality an advantage when seen from the right perspective.
But in a more general way Ms Lagarde did point out that the euro area is
Il Sole 24 Ore:
experiencing large economic imbalances. Is there a Europe-wide agenda to solve this
problem?
Trichet: The aim must be to elevate significantly growth potential in all countries through the
structural reforms that are overdue in Europe. This will remain strategically important in the
next decade. The 2020 Agenda will have to be implemented in a more effective way than the
2010 Lisbon Agenda, as President Van Rompuy has recommended. More generally let me
say that given the nature of monetary union, some countries, because of a rapidly aging
population for example, will have to run current account surpluses, while other countries with
very significantly fewer pension liabilities will not be called to run such surpluses. Similarly,
some countries, to regain competitiveness, will have to keep inflation below the EU average.
So a certain degree of dispersion of economic parameters might be possible within an
integrated economy which has the dimension of the United States, provided this dispersion
has economic justification.
Il Sole 24 Ore: Even accepting a period of deflation, with all the possible social
consequences this might have?
Trichet: Yes. We are an immense economy. It is normal that some regions, after growing
above the EMU average for some time, and after having accumulated high national inflation,
experience a correction and therefore a period of negative inflation, as it is currently
happening in Ireland.
Il Sole 24 Ore: The recent EU declaration regarding the Greece plan says that member
states should push ahead toward a stronger economic governance. What are you expecting:
a more coordinated approach or a transfer of competencies from the national to the
supranational level?
Trichet: As citizens we all have personal opinions on this matter. As a citizen, I would call
myself when time comes and when people are ready to move towards an accomplished
political federation. As of today our aim is to make the current institutional framework work as
best as possible. We call for the full respect of the present Treaty. EMU is politically a bold
endeavour: don't forget that with regard to fiscal policies the Treaty allows the college of
governments to impose decisions on other governments and parliaments. Implementing fully
the Treaty and the Stability and Growth Pact calls for a much stronger governance in the
future than what has been experienced in the past years.
Il Sole 24 Ore: We are at the very heart of democracy: no taxation without representation.
I repeat: peer surveillance on government and parliament as regards fiscal policy is
Trichet:
a bold political endeavour. I do believe that by going back with great determination to the
letter and the spirit of the Stability and Growth Pact we will make a jump in terms of
governance of the 16 members of the euro area, and that jump is overdue. Moreover, the
2020 Agenda is also extremely important to reinforce economic governance in the EU as a
whole, at the level of the 27.
A last word: are you optimistic that EMU will survive the current crisis?
Il Sole 24 Ore:
Trichet: Absolutely. Sometimes, we don't realize how much Europe has achieved in the last
half a century. The founding fathers could not even imagine the creation of a Parliament
elected by universal polling, of a European Court of Justice determining jurisprudence for
Europe as a whole, of a fully integrated single market and of a single currency, today for
330 million fellow citizens and 16 countries. Europe has also proved in the past two years
that it was able to cope with the worst global crisis since World War I. This has been in
particular true for the central banks, the ECB as well as the National Central Banks, in Italy
Banca d'Italia. We are experiencing a challenging historical period at a global level and I am
fully confident in the capacities of Europe and of EMU to surmount the difficulties of the time.