ECB Governor Jean-Claude Trichet: In His Own Words
On May 6, a day when the Dow had at one point dropped by a record 1,000 points, when German 2-year bond yields dropped 10bps to a record low 0.46% and when the spread of the 10-year Greek over German bond yields spiked to a record high 850bps, the Governing Council of the European Central Bank held a meeting. Below, I have selected some of ECB Governor Jean-Claude Trichet’s comments from the subsequent press conference.
On the stability of the bond markets and eurozone:
“I never comment on the market itself. I think that it is not very well known how solid the euro area actually is – the concept of the euro area. I, myself, over 20 years, had to explain tirelessly, on a lot of occasions, what we have been doing. So, I have no further comments to make.”
On the stability of the European banking sector on the back of the worsening treasury market:
“Strict implementation of the Stability and Growth Pact and of the excessive deficit procedures is crucial. I have no other comment. Of course, it is better to have low treasury interest rates than to have higher treasury interest rates. This is true, and this is the way you are rewarded when you do the job.”
On a low growth and low inflation outlook for the eurozone:
“In terms of sustainable growth and job creation, if you are obviously in a very bad situation, say in terms of fiscal policy, then you have no confidence in your country, and then households have no confidence, entrepreneurs have no confidence, and you cannot expect a recovery that would be satisfactory.”
On inflation targeting:
“…what happens for inflation in 2011 as an average is not, even for the strict inflation targeters, the target”
On fiscal austerity and monetary policy:
“Consolidation of public finances should start in 2011 at the latest and will have to exceed substantially the annual adjustment of 0.5%”
“The Governing Council will, in early March (May, sic) take decisions on the continued implementation of the gradual phasing-out of the extraordinary liquidity measures that are not needed to the same extent as in the past.”
On a question on Germany:
“…I cannot embark on responding to questions on particular countries. We are looking at a continent: 330 million people, 16 countriers. It is as numerous as the United States, and I doubt that, in a press conference, Ben Bernanke would have a question on Alaska or Massachussets.”
If you can’t be bothered to read that much transcripted text, allow me to summarize: 1) In the midst of the worst financial crisis in the eurozone’s history, the governor of the European Central Bank refuses to discuss individual countries or the financial markets. 2) Because of his constraints in not wanting to talk about individual countries or markets, Trichet completely ignored Greece in his introductory statement. 3) In the press conference, he mentioned the Stability and Growth Pact six times and on one of those occasions, it was in response to a question about how to restore stability to the banking sector. Does anyone else find it absolutely terrifying that the Governor of the ECB believes that a failed ex-ante policy is his solution to a very real crisis today? 4) It is clear that there is no policy cohesion between the EU, individual eurozone member governments and the ECB. Many people have been asking how the EU will cope with its first real macroeconomic crisis… the answer now is clearly leaning towards failure.
I will leave dear Risk Watchdog readers with three more quick gems of Trichet quotes. These ones from July 3 2008, when the ECB hiked its refinancing rate by 25bps nine months after the beginning of the global credit crunch.
“As regards domestic developments, the fundamentals of the euro area economy remain sound and the euro area does not suffer from major imbalances.”
“Looking ahead, on the basis of current futures prices for these commodities, the annual HICP inflation rate is likely to remain well above 2% for quite some time, moderating only gradually in 2009.”
“There is… a very strong concern that price and wage-setting behaviour could add to inflationary pressures via broadly based second-round effects.”
Seriously? Do you think anyone in Southern Europe (or even Germany, for that matter) is concerned about a wage-price spiral now? Well, there may be one person:
(NB: All quotes come from transcripts available on the European Central Bank website. Opinions expressed on Risk Watchdog are of the blogger and do not necessarily represent those of Business Monitor International)
May 7th, 2010 at 4:38 pm
Showing real leadership in the Euro zone’s first (and possibly last?) major crisis!
May 7th, 2010 at 10:47 pm
All fair points. But if Trichet or the Supreme Potentate, Herman van Rompuy started exercising strong leadership EU-wide, and interfered in specific countries then they would be accused of acting as dictators! Imagine a strong EU Federal entity imposing forcibly actual fiscal discipline in XYZ states. There would be wars against Brussels DC, and not even Jean Claude Van Damme could save it!
May 10th, 2010 at 10:44 am
Well, the news is in today and finally we are seeing some coordinated action from all relevant bodies: the EU, the IMF, Eurozone governments, and most importantly, the ECB. Beyond the unprecedented EUR720bn figure, I think the most important thing for the markets this Monday is that EU economic stakeholders are actually working together and recognising that there is a serious problem.
@Staci: I think there’s a balance that needs to be presented. Strong leadership does not need to mean the imposition of unfavourable policies. My point was that Trichet’s comments after the latest Governing Board meeting didn’t even acknowledge that there was a serious financial problem. Trichet betrayed his bureaucratic thinking, completely incapable of imagining a role for the ECB beyond inflation-targeting. This puts the Eurozone at a serious disadvantage compared to say, the US, which for all its faults, demonstrated a tremendous policy-making capability through the coordination of the Presidency, Treasury and Federal Reserve in its response to the effects following the collapse of Lehman Brothers.