ECB’s Trichet calls for budget surveillance to halt crisis
RT: You are President of the European Central Bank in, according to the Chinese proverb, “interesting times”. If you were to look back at the start of the euro project – what do you think should have been done differently?
Jean-Claude Trichet: I think we are all [living] in a very interesting and a stimulating time as you said. I mean all central banks of the world and all governments of the world, because we have to cope with the worst crisis, obviously. In our case I would say the strict, rigorous implementation of the Stability and Growth Pact, which was a crucial part of the EMU, proved to be absolutely of the essence. We have always said that EMU meant three letters: “economic”, “monetary” and “union”. We care for monetary union ourselves, in the ECB and the eurosystem. Then there is the economic union. The core of the economic union is the surveillance of fiscal policies by the college of governments.
RT: The center is responsible for the eurozone debt as its ultimate guarantor. Spending and taxation still remains on the periphery with individual governments. That has to be resolved. How will you resolve it?
JT: Governments are responsible for their own policies. What is extremely important is that not only they behave properly themselves because they are committed to behave properly but that they are under surveillance. Under close monitoring by their peers. All the system functions on the basis of, I would say, multilateral surveillance exerted by peers. I call, myself, on behalf of the governing council of the ECB, for decisive progress in implementing this multilateral surveillance framework.
RT: It is the markets that decide whether governments get to borrow and what interest rates they will pay. Are you sure that simply a monitoring function is going to change anything?
JT: The monitoring has to be effective. As simple as that. Of course the markets are looking at realities and I’m sure that when they see that the appropriate adjustments are made they will take that into account. Of course we favor what has been decided by the government which is to have the stabilization fund which has been created and which of course would be based upon very important, strict and serious conditionality. You were mentioning the attitude of observers and markets. Let me only say that what we have… in the case of one country you have quoted, namely Greece… what we have today is completely different to what we had only five or six months ago. We have a recovery program, an adjustment program which has been negotiated with the commission in liaison with the ECB and the IMF. We have a demonstration of the help that can come from both the IMF and the peers I mentioned. So we are in a situation where we have a strong program and we are very keen, as it has been done only a few days ago, to control its implementation on the spot with the IMF and the Commission.
RT: If this doesn’t work with Greece and other countries, would you prefer some kind of a permanent support mechanism or some kind of insolvency procedure?
JT: My working assumption is that it will work.
RT: The amounts of money involved can’t come from just within the EU. Are you looking at other sources of funding beyond the EU? A common bond, for example, would allow you to tap Russia. Prime Minister Putin said that the country is very much committed to the euro.
JT: I have appreciated enormously what has been said by Prime Minister Putin. What has also been said by a number of authorities in China and the rest of the world, and again what is being done by the Europeans is, in my, opinion, extremely important. The first element in the sequence being the adjustment program which has been decided. The European governments have committed to accelerating their fiscal consolidation and that is, of course, key.
RT: China is planning to invest heavily in countries like Greece. How would the ECB view it if the Chinese started coming in and buying up Greek banks?
JT: I said that I appreciate that the European securities, the European investments are attractive. I always said speaking of the euro myself that the euro is a very credible currency, which has kept its value in terms of price stability of eleven and a half euros – and I am repeating it today – in a way, which is remarkable we have an average inflation of 1.98 per cent at the moment I am speaking, which is exactly in line with our definition of price stability – less than 2 per cent, close to 2 per cent.
RT: Talking about inflation – you’ve said that Europe continues to sterilize the issue of money to governments. Yet at the same time you’ve promised unlimited support for the next few months to commercial banks. How do you square, how do you resolve those two issues?
JT: The unlimited supply of liquidity at fixed rate existed since the intensification of the crisis at the moment of the collapse of Lehman Brothers. So, what we have decided recently was to maintain the supply of liquidity for a certain period of time – for the three months. What is new is, of course, the securities market program that we have recently decided. And then we said that all the euros which will be injected because of this program will be withdrawn euro for euro. The price stability is our primary goal according to the treaty. It is what the people of Europe – 313 million people – are asking us to do. It is what we’ve been doing over the past eleven-and-a-half years and it is what the expectations of what we’ll do over the medium – and long-term period.
RT: Let me just ask you about the banks’ stress tests. There’s been concern over the confidence in Europe’s banks since this crisis began. The EU has announced it will publish the results of the stress tests in 25 banks. Are these new stress tests? And will there be a uniform standard applied from the central regulatory body or will this be conducted by national regulators?
JT: The law ensures that it is co-ordinated at the level of Europe as a whole. I expect that we will have appropriate and, I would say, appropriately co-ordinated parameters and working assumptions in order to have this, I would say, publication of individual stress tests.
RT: And what will you do if problems are revealed?
JT: I mean, it’s up to each particular country – as I said it is run at the level of each particular nation but on a co-ordinated basis. But the responsibility, you know, in terms of banking surveillance is responsibility at the level of nations concerned.
RT: As for commitment to spending controls, as you said, not just in Greece but all the way up to the Netherlands, do you worry that these austerity measures will make it harder for governments to rebuild their balance sheets, as well as banks, and that there’s a finely-drawn risk that this may actually prolong the crisis.
JT: Confidence is the most important ingredient certainly in the industrialized world. If we want to consolidate the recovery, we need confidence of the household for their consumption and also investment, we need confidence of the entrepreneurs and of the corporate businesses for their own investments and paying for them in the future, and we need confidence of the investors. It is clear that if – which is the goal – the governments are able to demonstrate that they have the appropriate plan to go back to sustainable fiscal policy are increasing confidence. And it plays for the recovery – consolidation.
RT: Are you convinced that the euro zone has seen sufficient reform yet to ensure that this kind of crisis could not happen again in the future?
JT: I think that the eurozone in particular has taken very important decisions and that those decisions are now looked by the market, by investors and are progressively incorporated into other decisions – they are very, very important and are to be respected. On top of that, we have to learn all the lessons for the medium- and long-term future. And this taskforce, which is chaired by Mr. Van Rompuy, which we are actively participating in, is of course a key element for doing all the lessons of the present situation in the medium- and long-term.