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Martin Wolf lunches with Jean-Claude Trichet

by Robert Teitelman  |  Published July 9, 2012 at 1:20 PM
European_central_bank.jpgThe most common theme about the euro-zone crisis seems to be that it's the result of a paralyzed political will, as Labour MP David Marquand writes in today's New York Times, of "political sclerosis." It is certainly quite clear that European politicians have taken a serious blow, particularly in countries suffering under austerity regimes. And while technocrats, like Mario Monti in Italy, have risen to power because of those perceived failures, the very fact that a crisis exists in this dauntingly ambitious economic and political project is a blow to European technocrats. But what does "political sclerosis" really mean? There is an assumption here that building a viable, integrated Europe, and thus abandoning national sovereignties, is such a no-brainer that failure to move ahead represents a combination of political fecklessness and, in a more sinister way, the resurfacing of Europe's darker impulses. Marquand reflects that sense when he sweepingly declares, "We can no longer take for granted the democratization of Europe is a done deed. In Portugal, Greece, Spain, Italy and Ireland voters have discovered that the bond markets have more power over their destinies than they have themselves."

Marquand demands movement to political union -- now. He does not offer a mechanism to get there -- to convince either Britain or Germany. Instead, he defaults to a denunciation of current politics that cannot see what is so obvious to him. "The obstacles are timidity, lack of imagination and small-minded nationalism, not inexorable fate."

Who are these timid politicians and clueless technocrats? In the Financial Times over the weekend, Martin Wolf sat down to lunch with Jean-Claude Trichet, a longtime high-level financial bureaucrat in France (he was named to head the Banque de France by François Mitterrand) and the head of the European Central Bank from 2003 to 2011. Trichet, now 69, as much as anyone has been at the center of the euro-zone project. At lunch, with Wolf, he is polished and seemingly unruffled by events. Wolf clearly wants to pin him down, but he moves smoothly to block him. Trichet opens by describing the euro-zone crisis as just the third leg of a larger financial crisis, the first two of which were U.S.-centric. He subtly suggests that it wasn't really Europe's fault. He punctuates it with a comment from Ben Bernanke, "Now, Jean-Claude, it's your turn." It's probably not the first time he's used that comment.

Wolf, restless, moves in, getting the food out of the way in a quick paragraph. He asks, "Critics, mainly in the English-speaking world, look at what is going on and say, 'We told you so'; that it was always a silly idea. So how does Trichet, a powerful proponent, respond?" He parries. He claims monetary union, particularly compared to the European economic union, has been "a remarkable success." Then he shifts the ground. "What would you respond to somebody who says, 'I told you all market economies are rotten. The entire financial system has threatened to collapse. We have always told you that this system is not viable and prone to catastrophe?" He then admits to the absurdity of both statements, then skillfully creates another false connection: "And I have difficulty seeing a united Europe without a single market, and so, without a single currency. Imagine what the single market of the United States would mean if they had currencies in all the states." Of course, the U.S. has, since the Constitution, been a single sovereign nation. Europe isn't close.

And so it goes. Trichet craftily dismisses the very idea of a nation leaving the euro zone. "Such a position is not the position of the European democracies." Europe, particularly in the periphery, has to be more competitive -- he does not explain how. Germany has been restructuring for years, its "belts have been tightened." Does Germany understand its dependence on Europe? Trichet: It's a paradox, meaning Germany is of two minds. But, asks Wolf, doesn't austerity kill demand? Trichet waves this off. Europe is open to the outside world. Europe as a whole should be as export-driven and competitive as the Germans. Wolf volleys back. What makes Trichet think emerging nations would run deficits to help out Europe? His answer: They have large reserves. Wolf by now is almost strangling. "This, then, would turn the euro area into Germany writ large: something that disturbs me very much."

The lunch continues, with Wolf pressing questions about criticism of the ECB for refusing to intervene more heavily, about the size of the European Stability Mechanism, and protection of bank creditors. Trichet is up to all of them, though as Wolf notes about one answer, his answer is "indirect." Things were done because that's what we decided. Wolf ends by asking about the U.K.'s role in a more integrated Europe. Trichet tops it with another bit of Gallic paradox, involving de Gaulle, who resisted U.K. inclusion, and the current Europe, which really means the current technocracy, which wants it in. It is elegant, witty and completely evasive. Wolf leaves to catch his train back to London.

What can you draw from this conversation? Trichet is a tricky customer. But there is about this something of a dance across the edge of the volcano. Words alone can't paper over the reality of rising debt levels, bond prices and distress. But it also, by indirection and paradox, suggests how complex and difficult the politics and technique of all this really is. Simply calling the politics here timid and sclerotic gets you nowhere. - Robert Teitelman 
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Tags: Banque de France | Ben Bernanke | David Marquand | euro-zone crisis | European Central Bank | François Mitterrand | Jean-Claude Trichet | Martin Wolf | The New York Times
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