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

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SPIEGEL: Thus far, the ECB has been strong and independent because it had repeatedly rejected demands from the political domain for lower interest rates or too expansionary a monetary policy. You have now consented for the first time.

Trichet: We have consented nothing to the heads of state and government. We always take our decisions taking into account only our own assessment of the situation and not the "recommendations" of governments, markets or social partners. We decided on August 9, 2007 to supply €95 billion of liquidity in a few hours because our money market was being disrupted. And I could give many such examples. As I have already said, if there has been any direction of influence, it has been more in the opposite direction, from the ECB to governments, when making recommendations to them. And, let me tell you that those who took very significant responsibilities were those not applying the spirit and the letter of the Stability and Growth Pact. And neither were those who did not carry out their surveillance as they should have, and as we constantly asked them to do.

SPIEGEL: In an interview he gave to SPIEGEL a few months ago, Jürgen Stark, the ECB's chief economist, said that the ECB was not permitted to buy government bonds. Who is right?

Trichet: I have already said that this is explicitly authorized by the treaty over the past eleven and a half years, we have ensured price stability in Europe and have successfully met our target of keeping inflation below, but close to, 2 percent. We have done a good job fully in line with what the best central banks in Europe were doing before the euro. Those who believe -- or, even worse, are suggesting -- that we will tolerate inflation in the future are making a grave error. The governing council of the ECB did not hesitate to increase rates in July 2008 in a period of financial turbulence in order to ensure price stability. We were criticized at the time by the markets. This is a measure of our inflexible determination.

SPIEGEL: The Germans react particularly sensitively because the Bundesbank had always refused, even in times of crisis, to purchase government bonds. Can you understand these specific German concerns?

Trichet: I fully understand the particular sensitivity of my German friends. But facts are facts: Inflation in Germany has never been as low as it has been over the past 11 years. The German fellow citizens can see that the euro has indeed been a good store of value over time.

SPIEGEL: But people are concerned about the future. They fear that inflation will return and that their savings will lose value.

Trichet: At one time the Bank of England and the Federal Reserve decided to embark on "quantitative easing," namely the purchase of public bonds in order to supply as much liquidity as possible to the market. What we are doing at present is totally different. We will withdraw all the additional liquidity that we supply.

SPIEGEL: Many Germans also fear that their government is becoming the paymaster of Europe.

Trichet: I understand the Germans' fear of inflation, and their anxiety about their budget and their contribution to Europe. In France, I have occasionally been called the "Ayatollah of the Franc-fort" ...

SPIEGEL: ... which has two meanings: Frankfurt and a strong euro ...

Trichet: ... because I advocate a strong currency policy. Inflation is destructive for societies and democracy. Inflation is a tax on the poor and the weak. That is my very firm conviction.

SPIEGEL: There is always a great temptation for politicians to spend more money than they have. Inflation helps them to reduce their debt.

Trichet: Of course, we must now demand extensive adjustment programs from the governments, which the heads of state and government committed to the Friday before last. They are committed to accelerating the consolidation of their budgets. They know what is at stake now.

SPIEGEL: Would it not be good if a country such as Greece were able to leave the euro area?

Trichet: No. This is excluded. If a country joins the euro area, it shares a common destiny with the other members. There is a need for a quantum leap in the governance of the euro area. There need to be major improvements to prevent bad behavior, to ensure effective implementation of the recommendations made by "peers" and to ensure real and effective sanctions in case of breaches (of the Stability and Growth Pact). The ECB is calling for major changes, and I will explain this in the task force chaired by (European Council President) Herman van Rompuy.

SPIEGEL: What makes you so sure that Europe's top politicians will not now use the ECB as a permanent money printing machine?

Trichet: Again, we will take all the additional liquidity that we are bringing into the system back out. Our monetary policy stance is unchanged. We have never hesitated for one second to take the decisions needed in order to ensure price stability, without taking into account any pressure groups.

SPIEGEL: But the banks, too, are being spoiled by the ECB. As part of your so-called non-conventional measures, you have again made it possible for them to borrow countless billions. In doing so, are you not handing out even more play money to the financial markets?

Trichet: Again, we do what we believe we have to do in all consciousness in order to be able to deliver price stability over the medium term. We do not take into account pressure groups and lobbies. We supply liquidity to the banks so that they can finance the real economy and support the recovery, they know that.

SPIEGEL: Have you made any individual mistakes in the last few weeks?

Trichet: This is not for me to judge. History will do that. Last week, (former German Chancellor) Helmut Schmidt described the performance of the ECB as flawless.

SPIEGEL: Mr. Trichet, we thank you for this interview.

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• Part 1: A 'Quantum Leap' in Governance of the Euro Zone Is Needed
• Part 2: 'It Looked Somewhat Like the Situation after the Lehman Brothers Bankruptcy'
• Part 3: 'The ECB Has Been Strong and Independent'