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.'
SPIEGEL: Mr. Trichet, how have you been sleeping these last few days?
SPIEGEL: You haven't had any nightmares?
Trichet: No.
SPIEGEL: Nevertheless, the financial world has changed since the weekend before last. The countries of the euro area have put together a previously unimaginable rescue package with a value of over €700 billion ($889 billion) in order to save reeling member states from default. Even your institution has relented on a few of its firmest principles and now intends to purchase even poorly rated government bonds.
Trichet: No, we have not relented on our principles. Price stability is our primary mandate and compass. That being said, it is clear that since September 2008 we have been facing the most difficult situation since the Second World War -- perhaps even since the First World War. We have experienced -- and are experiencing -- truly dramatic times.
SPIEGEL: That's been evident from the way that you and others have been behaving over the last few days.
Trichet: At times like these, you have to keep your composure and analyze the situation as lucidly as possible. Back in August 2007, we were the first major institution in the world to correctly judge what was happening on the capital markets with the start of the turbulence. And we reacted swiftly.
SPIEGEL: What exactly happened between Thursday and Sunday of the week before last, when Europe's heads of state and government launched the largest financial rescue package in the history of Europe?
Trichet: On Thursday afternoon and throughout Friday, we had a continuous deterioration of the situation in the financial markets, both in Europe and, as a consequence, at the global level. On Friday, markets closed and number of important indicators -- spreads on sovereign bonds in Europe, CDS spreads and the situation in the interbank market -- were signalling the spreading of severe tensions. I made those points to the heads of state and government on Friday evening. That is what happened between Thursday morning and Friday evening. Being permanently alert is of the essence when you have important responsibilities.
SPIEGEL: Hedge funds and other speculative investors currently manage assets with a total value of $2.6 trillion. But even an unimaginable sum like that should not really be enough to bet against the euro area. So, do you think that we're vulnerable?
Trichet: Not if we do our job, properly.
SPIEGEL: The speculators just exacerbate existing problems?
SPIEGEL: So, what was in danger? Just the banks? The euro? The European Union?
Trichet: We are now experiencing severe tensions, which are coming after the events of 2007-2008. At that time, private institutions and markets were about to collapse completely. That triggered a very bold and comprehensive financial support by governments. And now we see the signature of some governments put into question. This is a problem for almost all industrialized countries. In the G-7, the major economies have a yearly deficit of around 10 percent of gross domesitc product (GDP). In the euro area as a whole it averages 7 percent of GDP. In this situation with extremely elevated deficits across the globe, the markets have singled out a weak link: Greece. Also taking into account the fact that its statistics were incorrect at one time, market pressure was concentrated there and a drastic adjustment program was necessary.
- 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'
