The ECB has published an interview with its chief Jean-Clause Trichet that he gave to the magazine Libération.
It focuses on the Eurozone’s recent crisis, and frankly, it’s a little depressing.
Take for example, this:
Q: The markets attacked Europe precisely where it is most vulnerable, in that it has a federal monetary policy without a single economic and fiscal policy.
A: This is not how I would describe matters. Since the severe crisis that erupted in 2007, which we countered by avoiding a recession that could have been as devastating as the one in 1929, all fiscal policies of the industrialised countries have been vulnerable, and not only those in the euro area. The scale of the recession has significantly weakened a number of budgets that were already in difficulty. I do not see what happened – and what is in the process of being gradually resolved – as a targeted attack on the sovereign risks of the euro area, but rather as questioning the fiscal policy of industrialised countries. Some countries have shown themselves to be more vulnerable than others. Certainly, it immediately calls into question the quality of the surveillance of fiscal policies undertaken by the other governments.
Maybe he can’t acknowledge the challenges posted by having a monetary union divorced from a fiscal union, because to do so would question the premise of the euro itself. Hopefully that’s the case, rather than him not seeing what makes the eurozone challenges special.
And then there’s his continued over-concern about inflation:
Q: So the ECB isn’t there to mop up the reckless spending of Member States?
A: The central bank is certainly not there to rectify the fiscal mistakes of governments, mistakes it constantly warned them about.
Q: Nevertheless, you have already purchased government bonds to the value of €59 billion. That is a huge figure!
R : Those interventions are sterilised. We are maintaining our monetary policy unchanged. We believe that the present monetary policy is appropriate in order to maintain price stability. In order to avoid changing our monetary policy by increasing liquidity, we are completely re-absorbing the liquidity provided as a result of these interventions.
The idea of there being inflation in the eurozone that merits sucking liquidity out of the system (sterilization) is pretty baffling.
But at least this basically correct, especially in light of late-cycle Moody’s downgrade of Portugal:
Q: Should a European rating agency be created, since the Anglo-Saxon agencies have added fuel to the flames during this crisis?
A: Rating agencies in general have had a pro-cyclical impact. They tend to amplify upward and downward swings in the financial markets. This is still obvious today. This runs counter to financial stability. It is probably advisable to put an end to a global oligopoly of three agencies. But the fundamental problem is to reduce, or eliminate, this amplifying effect that the rating agencies contribute to.