Wednesday

21st Feb 2018

Former ECB chief blames governments for euro-crisis

  • Trichet led the European Central Bank at the height of the euro-crisis (Photo: Council of European Union)

The former head of the European Central Bank (ECB), Jean-Claude Trichet, has blamed EU governments for what he called the "worst economic crisis since World War II” and said the eurozone is still at risk.

Trichet, who led the ECB between 2003 and 2011, spoke out on Tuesday (14 January) at a European Parliament hearing on the “troika” of international lenders which managed bailouts in Cyprus, Greece, Ireland and Portugal.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

Echoing EU economics commissioner Olli Rehn’s remarks to MEPs ealier this week, Trichet underlined the "extraordinary" and unpredictable nature of the euro-crisis.

But the 71-year-old French banker said he had warned EU governments of growing economic divergences in the euro area as far back as 2005 and that he had criticised member states, notably France and Germany, for ignoring the deficit and debt rules which underpin the common currency.

They did not listen.

As a result, when the US mortgage bubble burst and when Lehman Brothers investment bank fell, the euro was exposed to the full consequences.

Trichet said the eurozone could not have avoided some kind of fallout, “but it could have avoided becoming the epicentre of the sovereign debt crisis."

He rejected criticism by several MEPs that under his rule the ECB was too prudent and failed to calm markets the way his successor, Italy's Mario Draghi, managed to do with the mere verbal promise that he will "do whatever it takes" to save the euro.

Trichet noted that the ECB intervened on bond markets and bought up Greek debt as early as May 2010, when he was still chief and when the first-ever EU bailout was still being drafted. It interevened again in 2011 to buy Italian and Spanish debt when investors started to bet against the larger euro-states.

He said that if the ECB had not bought Greek, Italian and Spanish debt on his watch, then Draghi’s verbal promise would have had less weight.

"If we wouldn't have bought Spanish and Italian debt - a move which was highly criticised at the time - we would be in a totally different situation now," he added.

Turning to Ireland, where the government first used taxpayers’ money to guarnatee all deposits in Irish banks and then had to seek a painful rescue package, Trichet said "nobody advised them to do so."

But he noted that the Irish move was "justified" because all the big countries - France, Germany, the UK and the US - were at the same time securing their "systemic banks" to prevent a Lehman-type collapse.

"In Ireland this was dramatic because of the size of banks in relation to its economy. At the time you couldn't afford to let big banks fail. Now we're in a different situation, banks can be wound down," Trichet said.

On Greece, Trichet tried to justify his clash with the International Monetary Fund (IMF).

Back in 2010, the IMF said Greece could never repay its debt and should write off some of its private and public liabilities. But the EU, under a deal by the French and German leaders, wanted the private sector to take the hit alone in what it called “private sector involvement [PSI],” putting Trichet in a tough spot.

Trichet said the IMF talks were "difficult,” but in the end the two sides agreed on the basis the Greek PSI would be a one-off.

One MEP asked him why he “denied reality” for more than a year, ignoring the IMF’s predictions on the unsustainability of Greek debt, in a situation which drove up the final cost of the Greek bailout and the PSI losses.

Trichet said he did it to buy time to fight the Franco-German idea of PSI as a model for all bailouts.

Despite his actions, PSI came back in a vengeance in Cyprus in 2013, when it was renamed a “bail-in,” and when it saw lenders snatch the savings of well-to-do private depositors on top of private bondholders.

But Trichet was already long gone from the ECB.

Analysis

Lessons from Ireland's failed bank guarantee

Five years after the failed Irish experiment of giving a blanket state guarantee for banks, the EU has more rules in place, but taxpayers' money is still on the line.

Baltic states demand bigger EU budget

The leaders of Estonia, Latvia, and Lithuania say in a joint letter that they are open to talks on creating "new own resources" for a bigger EU budget after the UK leaves the EU.

EU-Latin America trade talks move to 'endgame'

Senior negotiators in the EU-Mercosur talks will meet in Brussels on Friday to work out the technical bits of a possible trade deal, after top political officials gave the talks a final push.

Analysis

We are not (yet) one people

Talks on the next EU budget will start on Friday. Brussels wants to do much more than before – and needs a lot more money. But arguing about funds won't be enough.

News in Brief

  1. Commission fines car cartels €546m
  2. Juncker: 'nothing' wrong in Katainen meeting Barroso
  3. Juncker appoints new head of cabinet
  4. MEPs decide not to veto fossil fuel projects list
  5. Factory relocation risks drawing Vestager into Italian election
  6. Irregular migration into EU drops to four-year low, says Frontex
  7. Macron's new migrant law faces opposition in parliament
  8. MEPs approve anti-smuggling bill on tobacco

Stakeholders' Highlights

  1. Macedonian Human Rights Movement Int.European Free Alliance Joins MHRMI to End the Anti-Macedonian Name Negotiations
  2. International Climate ShowSupporting Start-Ups & SMEs in the Energy Transition. 21 February in Brussels
  3. Mission of China to the EUChina-EU Tourism Year to Promote Business and Mutual Ties
  4. European Jewish CongressAt “An End to Antisemitism!” Conference, Dr. Kantor Calls for Ambitious Solutions
  5. UNESDAA Year Ago UNESDA Members Pledged to Reduce Added Sugars in Soft Drinks by 10%
  6. International Partnership for Human RightsUzbekistan: Investigate Torture of Journalist
  7. EPSUMovie Premiere: 'Up to The Last Drop' - 22 February, Brussels
  8. CESICESI@Noon on ‘Digitalisation & Future of Work: Social Protection For All?’ - March 7
  9. UNICEFExecutive Director's Committment to Tackling Sexual Exploitation and Abuse of Children
  10. Nordic Council of MinistersState of the Nordic Region 2018: Facts, Figures and Rankings of the 74 Regions
  11. Mission of China to the EUDigital Economy Shaping China's Future, Over 30% of GDP
  12. Macedonian Human Rights Movement Int.Suing the Governments of Macedonia and Greece for Changing Macedonia's Name

Latest News

  1. MEPs bar WMD and killer robots from new EU arms fund
  2. Canete gets EU parliament pension while still commissioner
  3. Bank of Latvia sends deputy to ECB amid bribery probe
  4. We are not (yet) one people
  5. Intellectual property protection - the cure for Europe's ills
  6. Eastern states push back at rule of law conditions on funds
  7. Katainen explains: My friend Barroso did not lobby me
  8. A European budget: securing a prosperous future for Europe

Stakeholders' Highlights

  1. Dialogue PlatformBeyond the Errors in the War on Terror: How to Fight Global Militarism - 22 February
  2. Swedish EnterprisesHarnessing Globalization- at What Cost? Keynote Speaker Commissioner Malmström
  3. European Friends of ArmeniaSave The Date 28/02: “Nagorno-Karabakh & the EU: 1988-2018”
  4. European Heart NetworkSmart CAP is Triple Win for Economy, Environment and Health
  5. European Free AlllianceEFA Joined the Protest in Aiacciu to Solicit a Dialogue After the Elections
  6. EPSUDrinking Water Directive Step Forward but Human Right to Water Not Recognized
  7. European Gaming & Betting AssociationGambling Operators File Data Protection Complaint Against Payment Block in Norway
  8. European Jewish CongressEJC Expresses Deep Concern Over Proposed Holocaust Law in Poland
  9. CECEConstruction Industry Gets Together to Discuss the Digital Revolution @ the EU Industry Days
  10. Mission of China to the EUChina-EU Relations in the New Era
  11. European Free AlllianceEnd Discrimination of European Minorities - Sign the Minority Safepack Initiative
  12. Centre Maurits Coppieters“Diversity Shouldn’t Be Only a Slogan” Lorant Vincze (Fuen) Warns European Commission