Speech by Jean-Claude Trichet, President of the ECB,
Frankfurt am Main, 19 October 2011
Sehr geehrte Frau Bundeskanzlerin,
President of the European Parliament,
President of the European Council,
President of the European Commission,
President of the Eurogroup,
Dear President Giscard d’Estaing,
Dear Chancellor Helmut Schmidt,
Ministers, Excellencies, fellow Governors,
Dear Members of the ECB staff,
Ladies and gentlemen,
It is more than thirteen years since the European Central Bank was founded, and almost thirteen years since the Euro was launched. As my mandate as President of the ECB draws to a close – and throughout my eight years of office – I profoundly feel the high level of trust and confidence the European democracies have decided to bestow on the ECB. Our primary mandate of preserving price stability, as well as our independence in fulfilling this mandate, were given by the people of Europe on a multinational and multipartisan basis.
In being fully faithful to our mandate, we are faithful to the democratic will of the Member States.
With my five colleagues of the Executive Board, my twenty-two colleagues of the Governing Council, as well as with the dedicated staff of the ECB, we have been called upon to realise a long-standing and ambitious idea of the people of Europe.
The single currency is an ancient idea, which has deep roots in history. Without going back to the Roman Empire or the Carolingian Empire, six centuries ago Georges Podiebrad, the king of Bohemia, was calling for a common European currency.
Well before the Werner report, published forty years ago, great thinkers of all European nationalities have called for unity with a single market, a single economy and a single currency. These historical roots put in perspective the accomplishments of the Euro as a new currency, the present challenges of the euro area and the future of the Economic and Monetary Union.
The achievements of the Euro as a currency have to be judged against its primary mandate. Over nearly thirteen years, and in spite of a series of major global economic and financial shocks, average yearly inflation has remained at 2.0% for 332 million fellow citizens. Despite the successive rises of the price of oil and commodities, it is the best result, over such a period of time, of the 50 last years in any large country in Europe. In Germany, with average yearly inflation of 1.6% over 13 years, it is a better result than before the Euro.
Equally important is the low level of the inflation expectations. The ECB Governing Council is providing a very solid anchoring of price stability over the next ten years, fully in line with our definition: less than 2%, but close to 2%.
The Euro is a credible currency that has proved to be a very good store of value, backed by solid fundamentals.
These last eight years can be divided into two periods of equal duration.
The first four years were challenging, but no more or less than usual for a central banker. The ECB had to preserve stability after the bursting of the dotcom bubble and in the face of high and volatile oil and energy prices. We fought hard to preserve the fiscal governance of the Euro area, at a time when the three major countries wanted to weaken the Stability and Growth Pact. And, as always, we had to take our responsibilities for our own decisions; also when increasing interest rates, which at times did not please many governments, market participants, or the international financial institutions. The ECB has been fiercely independent and will remain so.
After four years came the financial and economic crisis.
Not a crisis like many we have known over the last 50 years. Not like the first oil shock of 1973 or the second oil shock of 1980. Not an event like the sovereign debt crisis of the 1980s and beginning of the 1990s. Not like the Asian crisis or the dotcom bubble bursting in the early 2000s.
Since August 2007, we have experienced a crisis of a new kind. A global phenomenon that has no equivalent since World War II, in its nature and dimension. For the first time since 66 years, the epicentre of the global crisis was the financial system of the advanced economies.
The impact of the crisis on the real economy could have been of the magnitude of a great depression, had central banks and other public authorities not reacted with rapidity and resolve.
For its part, since the financial turbulence began, on 9 August 2007, the ECB Governing Council has applied a “separation principle”. It has separated the “standard” measures – namely the interest rates designed to deliver price stability over the medium term – from the “non-standard” measures – designed to help restore a better transmission of our standard measures at times of market disruptions.
The credibility of the Euro and the solid anchoring of inflation expectations over the next 10 years have been well preserved throughout the crisis. This is because we have kept an unwavering sense of our direction – price stability – thanks to our interest rate policy, whilst at the same time being alert in taking appropriate non-standard measures – full allotment of liquidity at fixed rates, purchase of covered bonds, and the Securities Market Programme. And again, all decisions of the Governing Council have been taken in full independence.
Since the crisis began, I have thought of the qualities expected from central banks as being analogous with the two ethical virtues famously suggested by Max Weber nearly a century ago: the ethic of conviction and the ethic of responsibility.
I proposed an analogy, to associate the “standard” measures with the ethic of conviction and the “non-standard” measures with the ethic of responsibility. It is equally important to preserve integrity between intention and action, and between action and consequences. Our “separation principle” proposes a way to preserve both.
Max Weber said himself: “Das bedeutet nicht, dass eine Gesinnungsethik gleichzusetzen ist mit Verantwortungslosigkeit oder dass eine Verantwortungsethik gleichzusetzen ist mit prinzipienlosem Opportunismus […]. Die Gesinnungs- und die Verantwortungsethik sind keine Gegensätze, sondern ergänzen einander.” “This is not to say that an ethic of ultimate ends is identical with irresponsibility or that an ethic of responsibility is identical with unprincipled opportunism (…). The ethic of conviction and the ethic of responsibility are not opposites. They are complementary to one another”.
The crisis has revealed fault lines in all major advanced economies of the world. The sustainability of their medium to long term strategies has been put into question. Europe – and the Euro area in particular – has shown positive fundamentals, on a consolidated basis, in particular, as regards its overall fiscal situation and domestic and external equilibrium. But on a country-to-country basis the major weakness of the Economic and Monetary Union lies in its insufficient governance of the economic union, while the monetary union has delivered according to expectations.
The need to strengthen economic governance is the first lesson from the crisis. On behalf of the Governing Council, I have continuously called for a “quantum leap” in governance. The “six packs” just approved represent a significant step. Implementation will show if they constitute a quantum leap. I appreciate, President Buzek, the resolve of the European Parliament in the discussions which took place with the Council.