Konjunktur
Trichet-Interview: English version

English version of the interview given by Jean-Claude Trichet, President of the European Central Bank, to the Handelsblatt.

Handelsblatt: Mr. President, one of the main problems facing the economy in Europe has been the development of the euro/dollar exchange rate. When the exchange rate approached 1.30 dollar, you expressed your concern about this. Are you less concerned now that the exchange rate is well below that?

As President of the European Central Bank (ECB), I was the first to point out in Europe that we were not satisfied with excessive exchange rate movements. The market participants took that as an important message. Then we had the position of the Eurogroup, of Europe as a whole and finally the position adopted by the G7 in Boca Raton, all of which contained the same message, which included the point that excessive exchange rate movements are not desirable. It is very important that all of us in Europe and in the U.S. speak the same language on the euro/dollar relationship. I stand completely by our European consensus and by our joint declaration in the G7.

You recently stated that the risks involved in your main scenario of a continued gradual upturn have been balanced. Have the data of the past few weeks done anything to change this assessment?

As you know, we meet every month to analyse the situation and the 18 members of the Governing Council collectively work out their precise diagnosis. We do this in an exceptionally transparent manner. You know our analysis from the last meeting and we will present a new analysis after the next one. On the economic side our working assumption is of a gradual European recovery. We are currently analysing data coming from the economy. We are vigilant and alert. In case our expectations for stronger household consumption and overall domestic demand were not to materialise, we would work out our assessment accordingly, fully in line with our monetary policy strategy.

Chancellor Gerhard Schröder has made it clear that he considers the prime interest rates in Europe to be too high. Do you regard this as unsolicited interference?

Many years ago, when I was Governor of the Banque de France, my friends at the Deutsche Bundesbank told me that this happened from time to time and that it was Chancellor Adenauer who was the first to do so. Overall, this appeal by Chancellor Adenauer helped to build the reputation of the Deutsche Bundesbank because afterwards the central bank took its decisions in full independence.

Does this mean that demands for an interest rate cut, like those coming from the Chancellor, could deter the ECB’s Governing Council from doing just that?

I am convinced that true independence means that you do not allow yourself to be influenced in one direction or another. Everyone knows and can see that we do not do something because we are asked to do it. In the same way we should not refrain from doing something just because we have been asked to do it. That would be childish. We have to analyse the situation without any prejudice, on the basis of facts and figures, in full independence, and make certain that we come to the right decision in line with our monetary policy strategy.

You keep complaining about weak consumer confidence. Could lowering the interest rate help to prop it up?

In the normal course of economic activity, recovery most often starts with net exports, then passes over to investment and then, as the third stage of the rocket, so to speak, arrives at consumption. The first two rocket stages have ignited and we continue to follow the relevant hard data. We now have to examine very carefully the ignition process of the third stage. It is clear that household consumption is not only driven by the impact of stronger exports and investment, but also by consumer confidence. We have ascertained that consumer confidence today is not necessarily at the level that would be justified by the basic economic data.

Why is that?

I see three reasons. First, the development of the labour market is not satisfactory. This in turn comes from the structural impediments which characterise Europe and from the previous phase of the cycle. We have good reasons to think that this situation will progressively improve. Second, there is the unfortunate phenomenon that public opinion very often discovers the problems at the moment they are tackled, when governments, parliaments and social partners carry out the structural reforms that are urgently needed. This late and brutal discovery could have a negative impact on confidence. Had the public been more aware of the underlying problems, the reforms, when decided upon and implemented, would have increased confidence. That is the reason why we believe that transparency, pedagogy and tireless explanations are an essential part of preparing structural reforms: we all have a role to play in this domain, including the ECB, to make clear to people the advantages of the reforms as regards growth, job creation and higher standards of living. And third, there is a further point which touches upon the primary objective of the ECB. In a number of countries part of the population has the feeling that the inflation rate could be higher in the future and that their purchasing power will not be appropriately preserved. This has a negative influence on consumer confidence. We, on our side, have all reasons to trust that we have inflation under control and that prices will be in line with our definition of price stability. And we tell the public that we, as the guardians of the currency, are defending their purchasing power, that they can trust us and that they can invest and consume with full confidence.

Speaking of structural reforms, are you satisfied with the pace at which they are being implemented in Europe?

We want to help explain to citizens why the reforms are necessary and facilitate their implementation. We have made no bones about the fact that we have been disappointed with regard to fiscal policy. But the very countries whose fiscal policies have been so disappointing have recently shown courage in the way they have started to tackle the structural reforms. That also needs to be said. Naturally, we would always prefer a faster pace. But we do not underestimate the complexity of this urgent task.

In the past few months there has been a great deal of political controversy over the Stability and Growth Pact. Is the ECB’s ability to ensure price stability restricted by the fact that it was not possible to enforce compliance with the deficit limits?

We will carry out the ECB’s mandate to secure price stability, which is so essential for the confidence of European citizens, no matter what happens in other areas of economic policy. It is our duty according to the Treaty to be an anchor of stability – and therefore an anchor of confidence particularly in difficult times.

Is there a need to amend the Pact?

My colleagues and I do not believe that it would be advisable to amend the Maastricht Treaty or the Stability and Growth Pact. We share the assessment of the EU Commission that the implementation could be improved upon. With a better economic analysis and understanding of the structural aspects of fiscal policy, it would most likely be possible to improve on the implementation. If we understand better what should be done during good times this could be useful as well. There is much that we could improve upon without changing the wording of the texts.

Would it be possible to effectively oblige the countries newly joining the European Union to comply with the deficit limit rules, before they are allowed to introduce the euro?

Unfortunately, three countries have failed to comply with the deficit limits set forth in the Treaty. The ECB Governing Council very promptly made it clear that it completely supports the EU Commission in its insistence on compliance with the Pact, and it has regretted the decision of the majority of the EU Council to refrain from carrying out immediately the normal procedure. However, I note that 12 countries have respected the conditions of the Pact. Furthermore it is important to realise that the very same majority in the EU Council has called upon the countries concerned to commit themselves to taking appropriate measures to bring the deficit back to under three percent of the gross domestic product, and to actually meet this commitment, as otherwise the sequence of sanctions of the Pact will be set in motion. One cannot say that the Pact is dead. The very fact that we are talking about it so much shows that it is alive. Of course, it applies to all 25 current and future EU Member States.

Do you share the fear that is occasionally expressed that the EU enlargement could exert such great pressure on the monetary union that in the end it could actually break up?

I am troubled to see from time to time in the 15 EU Member States a certain pessimism, a negative perception. Enlargement proves that we have done the right thing in creating the European Union. It is time to celebrate. Enlargement is good for growth, not only in the countries newly joining the EU, but in the rest of Europe as well. I would compare the entry of 75 million people into the European Union of the “15” on 1 May 2004 with the accession of 45 million Spaniards and Portuguese into the smaller European Union at that time of the “10”. Who would seriously claim that the accession of Spain and Portugal was not a good thing for Europe or that we have not all profited from it?

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