European Central Bank President Jean-Claude Trichet A 'Quantum Leap' in Governance of the Euro Zone Is Needed

European Central Bank President Jean-Claude Trichet: "We are facing the most difficult situation since the Second World War -- perhaps even since the First World War.'
AFP

European Central Bank President Jean-Claude Trichet: "We are facing the most difficult situation since the Second World War -- perhaps even since the First World War.'

Part 2: 'It Looked Somewhat Like the Situation after the Lehman Brothers Bankruptcy'


SPIEGEL: Apparently it was not only Greece that came under attack. Portugal was next ...

Trichet: In the market, there is always a danger of contagion -- like the contagion we saw among the private institutions in 2008. And it can occur quickly. Sometimes it is a question of half days. This is an issue for the industrialized world as a whole.

SPIEGEL: Allegedly, even Asian central banks have lost confidence in the euro. And they are key players.

Trichet: A currency which keeps its value fully in line with its definition of price stability -- with annual inflation rate of less than 2 percent, close to 2 percent -- over almost 12 years is a currency which inspires confidence.

SPIEGEL: In the case of Greece, the debate in Berlin just a few weeks ago was about providing assistance to the tune of €3 billion. Now talk is of three-figure sums. What has the German government's hesitation over Greece cost us?

Trichet: There is much more to this story. The Greek government took too long to acknowledge the extent of the problem and take the necessary measures. We at the European Central Bank (ECB) were loud and clear in our warnings that the government must act quickly and decisively. In very demanding times, in times of severe tensions deciding swiftly and decisively is of the essence.

SPIEGEL: The financial markets were not impressed by the first aid package for Greece.

Trichet: As I said, the situation was already starting to get worse on Thursday afternoon and throughout Friday of the week before last. A number of markets were no longer functioning correctly; it looked somewhat like the situation in mid-September 2008 after the Lehman Brothers' bankruptcy.

SPIEGEL: Was the attack on the euro not more dramatic for Europe than the Lehman affair?

Trichet: It is not an attack on the euro. It is an issue for the states' signatures and, as a consequence, of the financial stability of the euro area. It is clear that it is the primary responsibility of the Europeans to take the appropriate measures in order to counter the present severe tensions which have erupted in Europe.

SPIEGEL: In the course of the crisis, the governing council of the European Central Bank decided, for the first time, to buy the government bonds of troubled EU countries -- thus breaking a taboo. The president of Germany's central bank, the Bundesbank, Axel Weber, his Dutch counterpart and the ECB's chief economist, Jürgen Stark, voted against this move. Seldom is there so much dissent within the highest decision-making body for the euro.

Trichet: As you know, I never comment on individual views. Our measures are explicitly authorized by the (EU) treaty. We are not embarking on quantitative easing. We are helping some market segments to function more normally. And, as I said, we will take back all the additional liquidity that we will supply in our Securities Markets Program.

SPIEGEL: The general public has gained the impression that the governments pressured the ECB to take this decision. That would be an appalling signal in terms of its independence and credibility.

Trichet: That is ridiculous! We take our decisions completely independently and have a track record of taking positions contrary to those of the heads of state and government -- in 2004 in refusing to decrease rates, in 2005 in increasing rates against their wishes, and throughout this period in fiercely defending the Stability and Growth Pact including defending it against the German chancellor of the time. Just who has been weak over the past few months? It was not the ECB. The governments with their high debts were weak. Was I weak myself when I explained to all floor leaders in the Bundestag (Germany's federal parliament) just why it was important to decide rapidly? Was I weak when I informed the heads of state and government in full independence that the situation was grave and that they had to live up to their responsibilities? We took our decision on Sunday in full independence.

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