© The Financial Times Ltd 2016
FT and 'Financial Times' are trademarks of The Financial Times Ltd.
The Financial Times and its journalism are subject to a self-regulation regime under the FT Editorial Code of Practice.
At precisely 12.20pm, I enter the courtyard of the Louvre. In front of me is IM Pei’s Pyramid, the entrance to the great museum and one of the grands projets of President François Mitterrand. To my right is Café Marly, where I have agreed to have lunch at 12.30pm with Jean-Claude Trichet, president of the European Central Bank until last autumn and, before that, head of France’s treasury and governor of the Banque de France.
The restaurant has a long line of tables, stretching along the wall of the palace, facing the great courtyard, some in the open air and then two rows of tables behind glass. It is elegantly laid out.
I have come to meet Monsieur Jean-Claude Trichet, I explain. The lady at the entrance looks at the list but finds no such name. I wonder whether I have taken the Eurostar on the wrong day. That would be remarkably silly. Then, suddenly, Trichet is there, exactly on time. I explain that there seems to be no table. But, as soon as the restaurant manager realises who my companion is, the missing table appears.
Trichet is 69, slim and elegantly dressed. It is more than 20 years since I first met him in the Trésor, in this very building. But he is largely unchanged: courteous, lucid (a favourite word of his) and considered, speaking in a cultivated but strongly accented English.
We reject sitting in the open air. So, from behind the glass, we look at the tourists. As we sit down, he checks that the meal is, indeed, on the FT. I reply that it is. This, I add, is his chance to get his own back on the newspaper by ordering the most expensive wine in the house. This is no great risk. I know he will be as correct in this as in everything else.
I remind him of that first meeting in his grand office in the Louvre. Yes, he responds, “It was a magnificent cube: 10m by 10m by 10m, in the Pavillon Colbert.” Then, I recall, the treasury was banished to a ghastly modern building in the remote east of Paris. “This move had paradoxically the support of both the president of the republic, François Mitterrand, a socialist, and of the prime minister, Jacques Chirac, a conservative, because it helped rebalance the east of Paris,” he replies. “It did not please at all the ministry of finance and the treasury people!”
Switching to the present, I ask whether, having been at the centre of the economic crisis since 2007, he feels relieved at no longer having to run the ECB. The reply is a classic: “I would say the body is out of this function, the mind is still very much with it.” How does he feel his successors at the ECB are doing? Diplomatic, as always, he says: “I think they are doing really well.”
This allows me to ask my first serious question. What did he think of the ECB’s long-term refinancing operation, announced last December, which provided €1tn in three-year funding for eurozone banks?
He replies meticulously: “I think it was in line with what I consider the conditions on such ‘non-standard’ measures. Of course, we had started the non-standard measures, as you know, very early for a very short period of time. It was 24:00 hours, on 9th August 2007,” he says, referring to when emergency liquidity was first pumped into the European credit markets to prevent contagion spreading from the US subprime crisis.
I ask whether he could have imagined doing such things seven or eight years ago. “Absolutely not,” he replies. “We are experiencing uncharted waters.
“In my own understanding of the situation, we are in the third episode of the crisis. We first had the financial turbulence from mid-2007 up to the collapse of Lehman Brothers [in September 2008]. Then we had the second episode, which started with Lehman Brothers. We – the central banks of the advanced economies – had to embark on very bold, non-standard measures and the governments had to step in massively. By the way, these states were not challenged at that time, as regards their own creditworthiness. A dramatic great depression was avoided.
“The epicentre of the third episode, the sovereign debt crisis, is now in continental Europe, in the euro area, while the epicentre of the two first stages was in the US. When I was discussing this, at the end of 2009, with Ben Bernanke, he summed up very well the situation, telling me, ‘Now, Jean-Claude, it’s your turn!’ So, here we are.”
What concerns him most, he says, is that “investors and savers the world over are not giving any more any privilege to any signature. That’s something entirely new.” In other words, the creditworthiness of advanced countries is now very much in question.
I object that this is not quite right: surely, the striking feature is the flight to safety inside the eurozone to Germany, from Italy, Spain and even, to a smaller extent, France? But we are interrupted by the restaurant manager. We decide to drink only water: an Evian (flat) for him and a Badoit (fizzy) for me. I take foie de veau (calf’s liver). He has filet de bar (fillet of bass). The food, when it comes, is excellent: tasty and, in the case of my liver, perfectly pink.
We proceed to a closer discussion of the eurozone. Critics, mainly in the English-speaking world, look at what is going on and say, “We told you so”; that it was always a silly idea. So how does Trichet, a powerful proponent, respond?
He notes first that monetary union itself has been a remarkable success – in contrast to the wider economic union. He then asks a rhetorical question: “How would you respond to somebody who says, ‘I told you market economies are rotten. The entire financial system has threatened to collapse. We have always told you that this system is not viable and prone to catastrophe’?”
He proceeds: it would be absurd to reject market economy on the ground that the financial system was about to collapse in 2008. “And I have difficulty seeing a united Europe without a single market and, so, without a single currency. Imagine what the single market of the United States would mean if they had currencies in all the states.
“My own working assumption is that the Europeans are learning the hard way that to run a single currency, you have to have not only a monetary union but also effective governance of the economic union.”
So, I ask, how well have policy makers responsible for this economic union been handling the crisis? “Nothing is easy,” he responds. “Don’t forget that, for me, we are experiencing a problem at the level of the advanced economies as a whole. So we all have to be ready: the fact that the market is not teasing you today does not mean it will not tease you tomorrow.
“The euro area is a good case in point. We have to apply rigorously the reinforced stability and growth pact; we have to embark on the effective surveillance of competitiveness indicators; we must fully utilise the present crisis management tools, which were unthinkable at the beginning of the crisis; and we have this concept of a ‘banking union’, which is very important: the present 99 per cent correlation between the creditworthiness of the banks and the creditworthiness of the sovereign is a source of great vulnerability.
“History is not written yet,” he adds. “I trust that we must go further, towards an economic and fiscal federation.”
He explains that, today, if a country misbehaves, risking the stability of the euro area as a whole, as well as its own, it is supposed to be subject to sanctions, namely fines. These fines have proved to be largely ineffective. He suggests a new concept: what he calls an “economic and fiscal federation, by exception”. “Instead of imposing fines, binding measures on countries would be taken directly, at the level of the European institutions, with ultimate decisions democratically voted by the European Parliament.” That idea would certainly raise hackles in British politics.
What about the here and now? Could the euro area survive the departure of a member? Trichet replies firmly: “Such a departure is not the position of the European democracies.”
This leads us to the controversy over current austerity policies. I ask whether there is an alternative. “I think, again, we have to look at each economy on its own merits,” he says. “It is clear that the economies which have room for manoeuvre have to, and will, exploit it. For instance, you don’t speak of austerity in Germany where the market economy is spontaneously and rightly activating domestic demand.
“Don’t forget that I had an eight-year term [as ECB president]. During the first five years, I was told that Germany was the sick man of Europe. And I responded, ‘Well, first of all, Germany is doing a good job to regain competitiveness.’ ”
By now, we have ordered coffees: a double espresso for me, an espresso for him and what turn out to be delightful puddings: vanilla bourbons.
I suggest we now need a boom in Germany. Trichet responds that Germany is growing. Not fast enough, I suggest, and it remains very export-dependent. He replies that Germany is “export-dependent, but it’s good that Germany exports to Asia because it’s a contribution to the prosperity of the euro area.”
Does he believe the German people understand how dependent they have been on their partners for their prosperity? “There is a paradox,” he says. “The German culture is probably the closest to accepting the long-term objective of a political federation. And, when responding to various polls, the majority of public opinion also says: ‘We like the European Union.’
“At the same time, I think the main difficulty is that, after reunification, during the past 13 years, German belts have been tightened, wages and salary increases have been very moderate. Thirteen years of moderation makes it difficult for German men and women in the street to understand that fellow European citizens have done the contrary.”
So what does he think will happen to France, now it has to restore its external competitiveness against Germany, as it did in the 1980s and 1990s, when he was in charge of carrying out “competitive disinflation”? Trichet insists that France simply has to do what needs to be done to regain its competitiveness.
But if everybody pursues such frugality, will the eurozone not suffer from deficient demand? He responds that, in any case, the euro area – like Europe as a whole – is not a closed economy but the most open of the big advanced economies.
I object that it is about a quarter of the world economy. “Yes,” he agrees. “It’s not negligible but it’s totally plunged in the vast global economy. And it’s not a closed shop. So I would say the recipe for the new European economy is to be as competitive as possible.”
I point out that then you would have to persuade the emerging countries to run deficits. But they are very nervous about that because they associate them with crises.
Again, Trichet is optimistic: “Now a number of them have a very impressive amount of insurance, with enormous reserve assets. In any case, it would not be abnormal for the wealthiest economies of the world to run some current account surpluses and to export capital.” This, then, would turn the euro area into Germany writ large: something that disturbs me very much.
I turn to a criticism of the ECB: its refusal to intervene more heavily in the markets for sovereign debt. I ask whether he feels the objection to this is legal, or economic. He insists the objection is not legal. “We purchased securities on the secondary markets, for Ireland, Portugal and Greece. We did that again for Spain and Italy. It is legal. Intervening on the primary market is not permitted by the treaty but, on the secondary market, the ECB has the right to purchase any security.
“Our main problem is the following: we do it for monetary policy reasons, because the ECB’s governing council is responsible for the monetary policy at the level of the euro area as a whole.
“But we cannot do that permanently, in place of the governments themselves. And I would, again, say I was expecting that, at the moment we are now talking together, we would have had a tool that would have been operational, credible in the eyes of the market and dependent on the governments themselves.”
I ask whether the planned European Stability Mechanism is big enough, given the potential threats? His answer is indirect: “The first conclusion would be that the stabilisation funds should be able to intervene on the secondary markets effectively, as had already been decided in principle in July 2011 [when Italian and Spanish government debt came under pressure].”
I turn to the ECB’s insistence that governments, particularly in Ireland’s case, should not allow default by their banks to creditors. What was the thinking behind that?
“This was something which was very lengthily and thoroughly discussed,” says Trichet. “And the judgment was that at that time and in these circumstances, the threat of contagion in Ireland itself was such that it would have been extremely dangerous [to allow the Irish banks to default].”
Finally, I raise the role of the UK in Europe. Many British people are beginning to think that, if the eurozone survives, it will become a much more integrated structure. So should the British accept that they would no longer have a place inside the EU?
“That is not, of course, what I hope: I really think that the UK profoundly belongs to Europe and Europe needs the UK. And there is presently a paradox because General de Gaulle was saying, ‘I don’t want the UK.’ Now all of Europe says, ‘We want the UK.’ And it’s the UK that says, ‘We don’t know.’ In any case, its future in the EU depends only on the UK itself, and that is remarkable.”
It is time for me to depart, to catch my Eurostar back to London: fine French technology. Before I go I say that he should be very grateful the UK was not inside the euro; then it really would have been impossible to manage.
Martin Wolf is the FT’s chief economics commentator
Le Café Marly
93 rue de Rivoli, 75001 Paris
Bottle Evian €7.00
Bottle Badoit €7.00
Calf’s liver €25.00
Sea bass fillet €26.00
Double espresso €7.00
Vanilla bourbon x2 €10.00
Total (including service) €86.00
Trichet on cultural unity: Kafka, Joyce, Proust and the meaning of Europe
European-ness means being unable to understand fully my national literature and poetry – Chateaubriand, Mallarmé, Julien Gracq, Saint-John Perse, Senghor – without understanding Dante, Cervantes, Shakespeare, Goethe and Heine. European-ness means that I share with all other Europeans the same basic cultural sources, despite the fact that they come from vastly differing backgrounds. This means that I live in a modern literary atmosphere that is influenced directly and indirectly by the Czech Kafka, the Irishman Joyce and the Frenchman Proust.
And as the Spanish philosopher José Ortega y Gasset wrote in his Revolt of the Masses in 1930, “If we were to take an inventory of our mental stock today – opinions, standards, desires, assumptions – we should discover that the greater part of it does not come to the Frenchman from France, nor to the Spaniard from Spain, but from the common European stock.”
Writing about the unity of Europe, the historian Braudel mentioned what he termed the “unités brillantes” (“bright unities”), distinguishing them from the “unités aléatoires” (“uncertain unities”). The “unités brillantes” cover all fields of artistic and intellectual endeavour, not only poetry, literature and philosophy but also music, painting, sculpture and architecture. It is no coincidence that the governing council of the European Central Bank chose European architectural styles to illustrate the banknotes of our single currency, the euro.
Extract from Jean-Claude Trichet’s speech, ‘Europe – Cultural Identity’, in Frankfurt on March 16 2009. The original speech can be read at www.bis.org
Copyright The Financial Times Limited 2016. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.