"Dear Sir," wrote French fund manager Edouard Carmignac in a valedictory letter to outgoing European Central Bank president Jean-Claude Trichet earlier this month. "Farewell, you certainly won't be missed."
The founder and president of Carmignac Gestion was entitled to be frank. After all, he'd paid serious money for the letter to be placed as a full-page advertisement in heavyweight newspapers in France, Britain and Spain. From that point of view, we can only regret he didn't think to boost The Deal magazine's advertising revenue with a full-page insert while he was at it.
Carmignac went on to sum up the (French) case against Trichet: that as governor of the Bank of France in the 1990s, he "dealt a fatal blow" to French industry with a strong franc policy, which undermined exports; and that, as ECB president since 2003, he deepened the impact of the 2008 financial crisis by underestimating its scale. This year, the letter said, Trichet had "endangered the euro with ill-considered rate hikes and clearly inadequate support for the debt of weakened European countries."
It is not the German case, however. For many Germans -- including Axel Weber, the man once expected to be Trichet's successor, and ECB chief economist Jürgen Stark, both of whom resigned from the bank this year over what were perceived to be policy differences with both Trichet and German Chancellor Angela Merkel -- Trichet has not been hawkish enough on either interest rates or the buying of sovereign debt. From their point of view, and for other hardliners such as the Dutch or Finnish governments, Trichet has not only paved the way for further trouble by agreeing to buy Greek, Portuguese and even Spanish and Italian debt, he has compromised the bank's prized independence.
It is a neat coincidence that French has the same words for "strong franc" and for Frankfurt, the German financial capital where the ECB has its headquarters. Le franc fort -- now the "euro fort" -- and Francfort (historically, a stronghold of the old German-speaking Frankish empire from which modern France gets its name), are now inextricably linked in European minds with a strict and Germanic way of thinking. By Germany's insistence, the euro was created to be a strong currency, similar to the old German deutschemark. The ECB's mandate was to maintain low inflation, and despite the underlying Stability and Growth Pact to which all the euro-zone member states signed up, the emphasis was all on the stability side. Unlike the Federal Reserve, the ECB has no mandate to consider economic growth or employment.
Trichet's ECB has thus been caught even more painfully on the horns of the same dilemma facing the likes of Ben Bernanke at the Fed or Mervyn King at the Bank of England -- restraining inflation while supporting economic growth. While others have to varying degrees followed the political wind to help keep their economies afloat, Trichet has doggedly upheld the bank's independence of political control and insisted inflation was kept under control under his watch, whatever the Germans might think. "We have delivered price stability over the last 12 or 13 years of the euro impeccably. Impeccably!" he insisted with barely disguised anger at a recent press conference in Berlin, in response to a question about a possible return to the German mark.
Even when he did agree to buy debt, under the ECB's Securities Market Program, Trichet insisted this was not the same as printing money by quantitative easing, as the Bank of England or the Fed did. But what is clear is that the program -- a repeat of a similar move in 2010 -- has shown that the ECB has become less inflexible and less immune to political realities than it would have the world believe. Trichet's successor, Italian central banker Mario Draghi, will have an even more delicate path to tread, coming, as he does, from a country hawkish Northern Europeans believe lacks the moral backbone to cut its debt and impose the necessary austerity.
Britain is proudly outside the euro zone but increasingly aware that what happens inside affects the British economy and the financial sector whether we like it or not. Here, there is unexpected political support for Trichet's demand for a more centralized role for the European Commission or another institution to take responsibility for "strong economic and fiscal surveillance and governance," to ensure that countries do not follow Greece or Italy down the path of excessive borrowing.
This is surprising because Britain is adamant that such surveillance should only apply to those inside the euro zone, and knows it has much to fear from creeping extension of European authority. It is equally surprising because Trichet himself must be aware that the creation of what he calls a European finance ministry would be a potential threat to the independence of the ECB from political control.
The naturally urbane and (despite his outburst in Berlin) affable Trichet will be a harder act to follow than his detractors allow. Sticking as closely as he did to his brief while 17 euro-zone countries tried to pull him 17 different ways was a supreme act of diplomacy and personal strength. Draghi will have to be even smoother to maintain that balance in the coming months. Otherwise, he, too, will certainly not be missed when he makes his exit.