jean - claude trichet : a rich variety of cultures at the heart of europe interview with mr jean - claude trichet, president of the european central bank, in the frankfurter allgemeine zeitung special supplement of the ecb cultural days, published on 4 october 2009. * * * 1. the ecb cultural days have been held seven times since their launch. on three occasions, they have featured countries from eastern europe. what does eastern europe bring to europe and to frankfurt, in particular? it is very important for the ecb – with our staff coming from all 27 eu member states – to discover or rediscover the wealth of european culture in the international environment of frankfurt and its surrounding area. as you say, it has always been our aim to embrace the whole of europe, both the old and new members of the european union. it is no accident that we have welcomed three central and eastern european and three western european countries. last year, on the occasion of the tenth anniversary of the ecb, the events involved all 27 eu member states in order to underline the diversity of european culture. this year, the 20th anniversary of the fall of the iron curtain, the event takes place against the unique backdrop of the reunification of europe. 2. you made a speech on european culture in frankfurt this spring, which explored the link between the concepts of roots, diversity and identity. did you have the ecb cultural days in mind? of course. i was very keen to deliver this speech upon the invitation of my friend, professor otmar issing. i profoundly believe that culture is at the heart of the european project. the cultural unity of europe is based on the recognition of, and an openness to, its cultural diversity. europe benefits greatly from the mix of cultures. this is the core concept of the ecb cultural days. 3. in times of crisis, culture can be seen as a luxury, a remedy or a refuge. the past two years must have been very difficult for you, presenting you with many challenges and a very heavy workload. what works of art helped you to unwind during this period? particularly in very demanding and challenging crises, it is important to remain composed, to be able to stand back from immediate events and to develop as sound and as lucid a judgement as possible. i think that, in times like these, it helps more than ever to read a good ismail kadare book or a beautiful heine poem,

##pricing of credit risks. additionally, many investors relied greatly on credit rating agencies for the valuation of complex financial instruments and their use as collateral. 2. strong economies and higher commodity prices were fuelling expectations of tighter monetary policy before the crisis started. in the first half of the year the economic situation proved to be very robust. most major central banks were normalising interest rates. strong demand for commodities put upward pressure on prices so that interest rates were rising in the first half of the year. 3. mortgage rate re - settings at higher interest rate levels caused delinquency rates to rise, most pronounced in the sub - prime mortgage market. this led to losses in the hedge fund sector and increasing difficulties in finding a fair value price for structured deals. moreover, investment funds experienced difficulties in nav pricing, resulting in the temporary closures of some funds. asset - backed securities with high credit ratings have proved not to be as sound, nor as liquid as they appeared. some of those structured investment vehicles or conduits were extensively leveraged and strongly dependent on short - term funding. in the absence of liquidity, sponsoring banks had to fund off - balance - sheet vehicles from their own balance sheet. this led to de - leveraging and forced asset sales. 4. higher default rates caused the first bankruptcies in the us and credit spreads started to rise. risk aversion spread to all asset classes. forced sales to cover margin requirements saw volatility rise sharply ( vix doubled from 15 to 30 % ). the unwinding of riskier positions caused stock markets to fall ( stoxx50 - 11 % ) and carry trades were liquidated ( eurjpy fell from 169 to 152, a 10 % appreciation ). as markets fell, margin requirements rose further. the uncertainty about the pricing of some instruments added additional pressure. 5. as the credit crisis spread further short - term liquidity evaporated. short - term funding in the interbank market became unavailable, causing casualties amongst banks and funds. in europe, ikb and landesbank sachsen were rescued from insolvency. northern rock followed later. funding in the primary market was impossible for banks. trading in the secondary market stopped, with the exception of government issues. 6. the effective shut - down of the refinancing pipeline left banks to rely on shortterm funding from central banks. neither primary issues nor short - term papers, such as abs or abcp