David Prosser: Trichet can only do so much by himself

 

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The Independent Online

Outlook Jean Claude-Trichet is doing his best to hide it, but his irritation with Europe's political leaders is palpable. And who can blame him?

The frustration for the president of the European Central Bank is that he is expected to provide the silver bullets in the eurozone's fight with the market wolves. But he cannot do so single-handedly. For while the ECB is the guardian of monetary union in the single currency zone, its powers only extend to the monetary part of that construct – the union element depends on the politicians.

It has not always wanted to act, but by and large, the ECB has done what has been asked of it during this crisis. It held interest rates lower than it wanted to for an extended period, intervened in the bond markets time and again, and participated in the rescues of those countries for which bailouts became inevitable. In the end, however, Mr Trichet does not have the firepower to provide more than a series of sticking plasters.

Prescribing the curative medicine is the task of the leaders of the members of the eurozone. But saving the euro requires them to contemplate a much greater degree of economic convergence than has been deemed acceptable before. And as we know from the American debt debacle, even in times of crisis, politicians are not good at making such sensitive decisions.

Still, the American bickering did do the Europeans a favour in a sense, providing a hugely useful distraction during the week or so following the deal agreed for the second bailout of Greece. Europe's leaders at least got a few days to gather their thoughts – but just look at how the markets' focus turned back towards the eurozone the moment a US deal was agreed.

In the end, the ECB had little choice but to give in to the markets' blackmail yesterday with more bond purchases, for that response was priced in. But the trouble with extortionists is that they always come back for more. Until the eurozone agrees a political solution, in which members are no longer able to rack up debt that other nations have to repay, the attacks will continue.

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