The careless banker

A profile of Wim Duisenberg, president of the European Central Bank
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The Independent Online

Not long before the birth of the euro, Wim Duisenberg gave a characteristically frank interview in which he confessed to one or two concerns about the job of running Europe's single currency.

Not long before the birth of the euro, Wim Duisenberg gave a characteristically frank interview in which he confessed to one or two concerns about the job of running Europe's single currency.

"I still have to get used to the intensity with which the world watches every word you say and every move you make," said the chain-smoking Dutchman. In the two years that have elapsed since, little seems to have changed. With just four words, uttered in an interview which appeared on Monday, the president of the European Central Bank sent the euro into another dive - this time crashing to a new all-time low against the dollar - when he suggested that central banks would be unlikely to intervene to prop up the euro in the event of a conflict in the Middle East. The markets dumped the euro.

Worse, Europe's elite performed the political equivalent on Mr Duisenberg. As they milled around the drab Kirchberg building in Luxembourg on Tuesday, Italian journalists were surprised to learn from their employment minister, Cesare Salvi, that Mr Duisenberg's words were "superficial". Later, Laurent Fabius, the finance minister of France, which holds the EU's rotating presidency, was asked three times to endorse the central bank president. On each occasion he refused to comment. Even as the European Commission proclaimed its full support, the chatter in the corridors was rather different. "My personal opinion," said one official, "is that he is mad". Around the chancelleries and treasuries of Europe there were searching questions about the performance of the man nicknamed by British tabloids "Dim Wim".

Dim, of course, he is not. As one would expect of a man whose publications include such learned texts as "Economic Consequences of Disarmament" and "Some Remarks on Imported Inflation", Mr Duisenberg is hardly short in the IQ department. An academic of talent, Willem Frederik Duisenberg was born in Heerenveen on July 9 1935 and educated at the University of Groningen before joining the International Monetary Fund in 1965. In 1969 he was enticed back as an adviser to the governing board of the Nederlandsche Bank, the Dutch central bank, before moving to Amsterdam University as professor of macro-economics.

A brilliant career in academia and banking beckoned, but Mr Duisenberg fell in with politicians from the opposition Labour Party after being consulted about economic policy. The result was an unexpected detour into politics when Joop den Uyl formed a centre-left government and Mr Duisenberg landed the post of finance minister. Even more surprising, given his later views, was what he did with the job. In the wake of the oil shock of 1973, Mr Duisenberg presided over a big boost in public spending which increased to 55 per cent of the Dutch gross domestic product in 1975.

Five years after leaving the government, he was back at the Nederlandsche Bank, this time as president, a job which he occupied for 11 years, establishing his credentials for monetary orthodoxy and presiding over what came to be known as the Dutch economic miracle.

As central bankers go, the tall, multi-lingual Dutchman, who sports a mop of white hair, is something of an extrovert; a man with a hinterland. A golfing fanatic with a handicap of 17, he once failed to turn up for an appointment with Dutch bankers at a meeting of the IMF and World Bank. It later emerged that he was on the golf course, winning a tournament organised by the Spanish hosts.

He has three grown-up children by an earlier marriage. With his second wife, Gretta ( pictured below), who is 10 years his junior, he has a holiday house in France and the couple enjoy fine wines and good food; Mr Duisenberg is also passionate about both classical and country and western music (Johnny Cash is said to be a favourite). They have kept their home in Amsterdam to which the ECB president commutes each weekend, spending the week in a pied-à-terre in Frankfurt.

With his blend of intelligence, political experience and - relative to his colleagues - a dash of panache, Mr Duisenberg was once thought of as Europe's answer to Alan Greenspan, the legendary head of the US Federal Reserve, who takes much of the credit for America's decade of prosperity. That this has failed to transpire, reflects both on Mr Duisenberg and on the wider problems surrounding the currency.

For one thing, none of his time in the Netherlands prepared him for the trial by fire that he has encountered in his new job. Central banking is a rarified, exclusive and highly technical world in which just one word can move markets and the ECB president won his spurs in a small pond. Mr Duisenberg's formative experience as central bank governor in the Netherlands occurred when, in 1983, the Dutch guilder was - against the advice of the central bank - allowed to devalue slightly against the D-Mark. Learning from the subsequent firestorm and pressure for higher interest rates, Mr Duisenberg resolved to recreate the guilder as a surrogate of the D-mark, Europe's strongest currency.

In Frankfurt, such commitment to Germanic ideals of monetary orthodoxy went down well. In Paris, the view was more disparaging and Mr Duisenberg won the soubriquet "Monsieur Cinq Secondes" - supposedly the length of time it took for the Dutch central bank to follow interest rate moves by its bigger German cousin.

Either way, when Mr Duisenberg moved to the 35th floor of the ECB's headquarters in Frankfurt's Eurotower, he had no experience of running a major international currency. Communication failings have not helped.

One of Mr Duisenberg's most endearing qualities is his commitment to give interviews in an attempt to redress the ECB's lack of democratic accountability. But his lively turn of phrase and willingness to give straight answers have got him into trouble.

The UK's decision on entry into the euro was, Mr Duisenberg once said, a "psycho-political" problem, provoking outrage in the British tabloids. In the run-up to the Danish referendum on the euro, he made a remark about Europe's pension systems which was interpreted by Eurosceptics as a threat to Denmark's welfare state. But the latest error is more serious as it moved the markets and came at a very sensitive moment in the currency's fortunes.

Last month, the world's biggest central banks took traders by surprise by intervening to buy euros, thereby supporting the currency and proving that selling it could be a losing bet. Asked whether it would make sense for the central banks to get into the market if a sharp change in currencies was caused by a war in the Middle East, he replied: "I wouldn't think so."

To compound the error Mr Duisenberg passed up the opportunity to retract his words when his press secretary intervened to ask if he wanted his comments to stay on the record. The result was that all the gains made in the earlier intervention were lost and the bank's credibility diminished. That, in turn, reduces its ability to call on its American and Japanese counterparts. It was a clear blunder. "Look at Greenspan," said one official in Brussels, "he never gets it wrong."

But more significant than the gaffe was the reaction. The ill-disguised anger from Paris underlined the fact Mr Duisenberg's very position remains contentious and the way he has operated since taking over in Frankfurt has exacerbated tensions between the different philosophies.

The divisions were evident in 1998 when the appointment of the ECB president was the cause of one of the biggest rifts in Franco-German relations of recent years, one which became public during an infamous lunch among heads of government in Brussels to resolve the issue.

France pushed hard for its own central bank governor, Jean-Claude Trichet, to be appointed to the top job. Polished and experienced, Mr Trichet is a graduate of the elite French civil service academy, the Ecole Nationale d'Administration and well connected within the political elite. Germany objected, pressing for Mr Duisenberg, a man it could trust to follow the Bundesbank philosophy of sound money.

The logic suggested a different choice, somehow who could straddle the two views. Instead, as the lunch dragged into the late afternoon, then the evening, a messy deal was done: Mr Duisenberg would be appointed for eight years but, under a gentleman's agreement, step down in favour of Mr Trichet in 2002. The public formulation was that, due to his age, Mr Duisenberg did not expect to serve out a full term.

Once ensconced in the Eurotower, Mr Duisenberg promised to be "more Catholic than the Pope" in pursuing the ECB's primary responsibility of price stability and monetary orthodoxy. He strived to prove his independence in the best traditions of the Bundesbank. In doing so he lost sight of the politics. Last year Mr Duisenberg annoyed the German Chancellor, Gerhard Schröder, when he attacked his bail-out of a debt-ridden construction company, and more recently he embarrassed the Irish government with a lecture about its inflation record.

At times Mr Duisenberg has appeared to treat Europe's politicians with disdain. When the European Parliament asked for publication of the minutes of the ECB's 17-strong governing council, the response was dusty. Mr Duisenberg offered to release the documents after 16 years. September brought another souring moment when the EU's finance ministers gathered in Versailles, at the time of another run on the euro, only to find that Mr Duisenberg had sent his deputy while the ECB president gave a lecture in north America.

Worse, his policy of "benign neglect" of the euro's exchange rate, pursued until the end of March this year, provoked growing anxiety among most of Europe's finance ministers. Outside the Frankfurt Eurotower, public confidence in the euro was getting ever-shakier, culminating in the Danish rejection of the single currency at the ballot box.

Thus the row over Mr Duisenberg's comments has rapidly escalated into a broader ideological debate over the type of currency Europe should have. The press in France and Belgium has denounced the ECB president as a "Eurogaffeur"; Dutch opinion has been much more supportive. Lousewies van der Laan, a Dutch MEP, argues: "Some countries are trying to find a scapegoat, and trying to detract from their own failings, particularly in restructuring their economies and liberalising their labour markets."

Will Wim survive? The slump in the exchange rate has masked the fact that other things have gone well for the currency: the technical introduction of the euro went smoothly, growth has held up in the 11 eurozone countries and, despite a tripling of the oil price, inflation remains low. The obvious successor, Trichet, is now embroiled in a judicial inquiry into the crisis at Crédit Lyonnais, which lost $18bn before undergoing a costly bail-out. All of which means that Mr Duisenberg is safe for now.

However, the euro is a political - as much as an economic - project, which needs a supple, disciplined figurehead who can retain his independence but also engage with politicians. Failing that, silence is golden.

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