Noah denkt™ - Project
                   ...demonstrating that a Golden Rule inspired business conduct leads
    to a superior judgment in finance and public policy ...
                                                                       ... "Don't do to others what you don't want them to do to you"...
An attempt at finalizing the debate on the European debt crisis
Translation of an interview that the Ex-President of the European Central Bank, Mr. Trichet, gave to El País,
Translation, published on Dec 31, 2013

Now, that the year is drawing to a close, it is probably the right time to finalize the ideological debate that has
been waged in Europe between those who are in favor of austerity and those who in current form oppose it.
And who would be better placed to do that than the Ex-President of ECB, Jean-Claude Trichet. On Sunday,
Dec. 29,
El País published an interview with Mr. Trichet that, in our mind, is so good and relevant that it
warrants our translated reproduction on this platform. Needless to say that this project identifies quite a bit,
although not entirely, with Mr. Trichet’s analyse.  
(For reasons of reference and transparency, we have introduced links to
our own commentary on subject issues.)   

The Trichet interview was presented under the headline “The ECB didn’t give orders to the Zapatero
government” and the ensuing Q&E reads in English by and large as follows:


“Question by El País (Q): It so happened that your time at the helm of the ECB was one of upheaval and volatility: You took
the risk to initiate a bond buying program but you also raised interest rates just before the recession kicked in. Was that the
political price for the exceptional measures you introduced?

Answer by Jean-Claude Trichet (A): The ECB intervened four times in difficult circumstances. It was the first to take
extraordinary steps once the crisis broke. After that,
it introduced a bond buying program which had decisive impact in the
Greek, the Irish and the Portuguese debt crisis. In August 2011, when Spain and Italy found themselves in extraordinary
complicated situations, the ECB not only played a crucial part in encouraging these respective countries to restructure their
economies but it also intervened in the bond market in favor of subject countries. And in the second half of 2012, the bank
activated an additional bond buying program in exchange for certain prerequisites [that aforementioned countries had
The bank, hence, has entirely lived up to its responsibilities. While totally respecting its prime mandate, i.e. price
stability, the bank managed to implement non-conventional measures in the worst crisis in a decade.

Q: This activist role of the bank continues under the leadership of Mr. Draghi. Nevertheless, Europe is experiencing
dangerous financial divisions. Why doesn’t the bank buy assets on a larger scale as do other central banks?

A: In Europe, 80% of financing is provided by the banks. In the US, however, this is being done by the financial markets. The
Federal Reserve has embarked on a massive asset buying program because it needs to keep the principal sources of
financing afloat.  In Europe, the solution is to provide unlimited liquidity to the banks: This is our way to stimulate credit,
equivalent to quantitative easing in the US.

Q: So you are saying that there isn’t anything else to do?

A: The ECB is looking at other options too. But this is a multidimensional task: governments need to continue with their
structural reforms, and
the Eurozone has to improve its financial and economic government as well as to complete the
banking union.

Q: Countries in the South of Europe are not happy about the way things are going. Only recently, Mr. Zapatero echoed other
voices in the region who argue that the US and Japan are better off thanks to their more interventionist central banks?

A: There is conflicting criticism of the ECB: Some argue the ECB is not doing enough; others say the opposite.

Q: Have you read Mr. Zapatero’s latest book?

A: Not yet.  But I will read it carefully, just as I have read “The Alchemists” by Neil Irvin.

Q: Your letter from 2011 to the then Spanish government continues to animate discussions in Spain. Do you regret that this
letter was filtered to the press?

A: I always thought that letters are the property of those that they are destined to.
It was a dramatic situation when we sent
these letters to the Spanish and Italian Prime ministers. Investors were quickly loosing confidence [in subject countries’ ability
to pay their debt.] The ECB felt, at the time, that it had to help the aforementioned countries, if the latter were showing signs of
willingness to correct their structural deficits. It was our duty to remind governments of the fact that it had lost substantial
credibility. Mr. Zapatero reacted quite responsibly to our initiative and the ECB, in turn demonstrated its confidence into Spain.

Q: Was that a quid pro quo: Intervention only in exchange for structural reforms?

A: There was no formal negotiation on this. We communicated to the Spanish government what we thought would be the way
to recover investor confidence.  And the Spanish government, in all its autonomy and independence took the decisions it
deemed necessary to take. And, once the ECB had thoroughly examined these steps taken, it decided to intervene. But I also
have to tell you that even from 2005 onwards, I myself had informed Euro members on a monthly basis about the
development of unit labor costs and current account deficits: I consistently warned that developments were unsustainable .
And as long as the markets didn’t take issue with that development, the respective governments didn’t pay attention to my
warnings either.

Q:  Mr. Zapatero’s book is called “The Dilemma”. Did it cause you any sense of dilemma to give orders to a member state
government or parliament?

A: The ECB didn’t give orders at all. And it didn’t negotiate anything either. We made it known to the governments what we
observed. And we were doing this since 2003, when various governments were in breach of the Stability Pact, and again from
2005 onwards, when numerous countries were loosing their competitiveness. There was no dilemma: We simply had to inform
the governments of the danger they were facing.

Q: And did it work? Zapatero says that he did not apply the labor market reforms you dictated.

A: Spain did take the right direction, in spite of all the difficulties.

Q: And Berlusconi?

A: I am not here to give good or bad school grades.

Q: After your letter, Zapatero and Rajoy implemented labor, pension and bank reforms, but the results of all these changes
continue to be poor: Unemployment continues to hover around 26%, credit is largely unavailable, public debt continues to rise.
Is it really adequate to view Spain as a reform success story?  

A: Current account deficits like that of Spain which scratched the 10%-mark, need to be financed. The problems starts when
the rest of the world says: “We do not want to continue financing this country”. Once that happens there is no other option
other but to readjust [and be austere]; you can debate how exactly you implement that austerity. Obviously, it is better to
restructure the economy just like Spain did with the help of other member states and on the basis of a convincing reform

Q: Hasn’t austerity gone too far in the South? And is the North doing enough to help?

A: The adjustments are necessary and inevitable, and it is the countries in difficulty that have to carry the brunt of the
restructuring efforts. At the same time,
there are countries that could do more - not just Germany - countries that under
normal circumstances should spur local demand, and stimulate growth. This is what is happening right now, albeit with some

Q: What else is there in line for Spain?

A:  The structural reforms implemented so far are not sufficient; nevertheless the work that successive governments have
done is impressive. The improvement in cost competitiveness which stimulates exports is impressive. Still, there continue to
be issues that need to be corrected, like in other countries as well, including mine.

Q: The new mantra, however, is that “the worst is over now”?

A: This is still a global crisis; it has ended yet. And the epicenter of that crisis is still here. At the same time, it is also true
Europe has demonstrated a remarkable level of resistance: A lot of people in the US and in Asia expected or feared a breakup
of the Eurozone. But the 15 states which were members of the EU at the time of the Lehman bankruptcy continue to be
members of that Eurozone. And now there are even 18 countries in that currency uniom.

Q: How do you explain that resistance?

A: The necessary adjustments were made.
The economic, fiscal and financial governance has improved. The ECB did what it
had to do. And all the democracies responded “yes” when they were implicitly or explicitly asked whether they wanted to
continue inside the Eurozone or not, or whether they wanted to help the ailing member states “yes” or “no”. From Greece to
Germany. For the credibility of the European project this has been fundamental   

Q: Is the banking union ambitious enough?

A: Details not withstanding, the political agreement in that respect has been important. Nevertheless, I am one of those who
support a credible fiscal back-up of that banking union if we truly want to decouple the problems of sovereign debt from those
of the banks. Another crucial point is this: We have to differentiate between what happens to a bank that is going to be closed
to a bank which is in need to be recapitalized after it has been sold to another financial institution. It would be a mistake to
treat creditors in the same way in both cases.

Q: In the case of Ireland, you were opposed to paying and expropriating bond holders. The question however remains, if
there is a way out of a crisis without a debt restructurings?

A: At the time, I objected to the so-called Deauville Agreement between Germany and France because it dangerously
encouraged speculators to think that they could make money attacking individual Euro member states.
This was corrected
once it became clear that Greek case was in category of its own. There is nothing similar on the table: We would be shooting
ourselves in the foot. We are now in a different situation. What we now need to determine is what to do when a bank (not a
country) is in difficulty without creating a systematic risk.

Q: Is this end of the era of risk-free assets?

A: Since World War II, there have been financial assets that were in deed considered to be risk-free in advanced economies.
Obviously, that belief was erroneously based on the assumption that some economies were beyond doubt as far as their
solvency was concerned. It is still unclear though how, in this new universe, national and global finance can be managed in
the future.

Q: Are you worried about the European elections and the rise of extremist parties?

A: In all advanced economies there is a widespread unease which translates in hostility towards the reigning institutions; that
is the case of the Tea Party in the US, and that is the case of the nationalist reactions on France, UK, Greece, Finland or
Germany. This is a phenomenon that goes far beyond Europe and I trust that we will fight together to change that.

Q: The response of the European Union to the crisis is one of the reasons for this unease, isn’t it?

A: I do not agree with that. In the worst crisis in 80 years, the European Union has managed to resist and to react. I am part of
those who believe that it sometimes did too little, too late, but at the end of the day our democracies have managed to take
the tough and painful decisions. And that is what is most important.

Q: So, the European leadership with a Germany stronger than ever has worked then?

R. With respect to governance we have a problem with the basic mechanism of sanctions: Sanctions are useless for a country
that has already made its mistakes and that, thereby, has put into doubt the stability of the Eurozone. As far as leadership is
concerned, the German debate is a boost for Europe: In Germany, it isn’t the government but the parliament which took the
pertinent decisions after a very fruitful debate. In other countries, like France, all that parliament did was to support the
decision of the President: there was no public debate.  Germany has been reasonably cooperative in this crisis, despite all
There is this impression that Berlin continues to say no, no, no; but when it comes to taking decisions, Germany
surprisingly ends up saying yes.     

Q: In Brussels, it’s always the German view that prevails, isn’t it?

A: Wasn’t it Germany that helped Greece and other countries?
Didn’t it accept the European Stability Mechanism?
Paradoxically, neither Spain – with a difficult  fiscal situation – nor France – which is isn’t like Germany either-  have had
anything close to a debate over the question whether or not it is possible and prudent to help the Greeks and if so under what
conditions. In Germany, these issues were being debated in a three minute rush.  And still the process in Germany did not
end in Berlin saying “no” to Greece, - but in a reasonably positive and cooperative decision instead. Having said this, it is still
necessary [for Germany?] to go further than this. We need more improvements in European governance and a better
democratic control. This crisis must not repeat itself.”
-  Translated into English by Noah denkt™

Reminder: Noah denkt™ is a project of Wilhelm ("Wil") Leonards and his Landei Selbstverlag