Defence of the Eurozone

3 May 2012. After Federal Councillor Ueli Maurer had issued a warning against excessive regulation, Greece’s former Prime Minister George Papandreou made the case for more trust in Europe. In a panel discussion in the course of the 42nd St. Gallen Symposium, Jean-Claude Trichet took the same line.

“Ayatollah of Frankfurt” for the Eurozone
The exchange between the former President and the BBC presenter Stephen Sackur developed into a slugfest when the discussion turned to the future of Europe. Unimpressed by the pessimistic rating expressed by the audience’s live vote, Trichet vehemently defended Greece’s continued membership of the monetary union. Referring to very recent media reports, Sackur called his interlocutor an “ayatollah of Frankfurt”, who was continuing to fight for a common monetary union even after his presidency in the ECB headquarters on the river Main.

When he was asked whether he had not underestimated the situation during the economic crisis in 2009 in his capacity as ECB chief and still saw it in overly optimistic terms, Trichet said: “The Eurozone did indeed seem to be very fragile after the great shake-up of the financial markets in 2008 – but in point of fact, it isn’t.” Nor was he able to see the EU as the epicentre of the quake since ultimately, all countries were affected by the global financial crisis.

China’s currency makes the grade

The success of the emerging markets, he continued, was a great challenge for the established national economies. China’s currency, the yuan, might trump the euro and the dollar in future, said Trichet, but he was unable to say precisely when this would be the case. At any rate, Europe had the resources to withstand the pressure and to stand its ground financially if it put its house in order accordingly.

Sackur also wanted to know from Trichet whether the ECB had made the right decisions with regard to its monetary policy of late. The Central Bank had pumped a trillion euros into the Union, yet the markets of Southern Europe had not become more stable as a consequence. “Without the regulatory efforts of the Central Bank, the Eurozone would have begun to totter even more,” said the financial expert in defence of the ECB’s position.

Central banks must ensure stability
It was the task of central banks worldwide to exercise their stability function with skill: “Europe is not on the brink; things will go on,” emphasised the former ECB President. A renationalisation of the European currency zone was not the right way to fight the government debt crisis: “We’ll have to stick together and create more transparency in the European institutions,” said Trichet.

Ultimately all the economies, including those of the emerging BRIC countries, would have to prepare well for risks and design their institutions accordingly. Risks would be inevitable on the global market; governments would have to learn to cope with them. Stability in Europe and worldwide could only be ensured by means of a common effort, said the convinced citoyen européen at the end his plea for more trust in times of crisis.

Picture: Hannes Thalmann