Jean-Claude Trichet: The guardian of the euro

Three months before he retires from the helm of the European Central Bank, the markets are in meltdown and the engineer turned economist finds himself facing his toughest test yet.

John Lichfield
Tuesday 01 November 2011 17:02
He says: 'The euro is not in question: it is solid, strong and credible. The euro has kept its value for over 12 years.'
He says: 'The euro is not in question: it is solid, strong and credible. The euro has kept its value for over 12 years.'

Almost everyone accepts that Jean-Claude Trichet is a brilliant man. He can, however, be startlingly naive.

A few years ago, the European Central Bank governor told a British acquaintance how much he appreciated the humour of Ali G. When informed that "Ali G" was actually a Jewish comedian educated at Cambridge University, Mr Trichet's jaw dropped in picture-book astonishment. "No!" he said. "Not really?" This week, Mr Trichet, three months from the end of his long career as a French, international and European civil servant, is alleged to have committed a far more serious misreading of the complexities of 21st-century life.

He was asked on Thursday for his response to the incipient market meltdown, provoked by worries that the eurozone debt crisis was about to engulf Spain and Italy. Mr Trichet, 69, who has been the eurozone's "Monsieur Euro" for nearly eight years, said that the European Central Bank (ECB) would resume its purchases of Portuguese and Irish debt. Result: an even steeper plunge in the markets. Fears about Portugal and Ireland were old hat after all. Was the ECB going to do nothing at all for Italy and Spain?

To blame Mr Trichet for the subsequent market firestorm in Asian, America and Europe would be unfair. The contagion of pessimism had already taken hold. Mr Trichet's defenders say that he was actually trying to be subtle. By reminding the markets that the ECB could intervene to buy up the debt of struggling eurozone members, he was implying that help would also be available, if necessary, for Spain and Italy. If he had stated boldly that the ECB was going to intervene to buy up Spanish and Italian debt, the markets would, he feared, have seized on his words as proof that Rome and Madrid were dished and done for. Probable result: an even more catastrophic plunge in markets.

The episode sums up the disastrous history of the eurozone's efforts to contain its debt crisis over the past 20 months. On one side of the card table, the markets are playing a hardball version of poker. On the other side, the governments and the central bank are going through the inevitable, hesitant, complex, shuffling search for EU compromise, a version of bridge, in which 17 partners are trying to read, or ignore or adjust to one another's hands.

In recent months, Mr Trichet has been urging EU governments to vault ahead of the markets and move towards a more federal system of eurozone "governance" which would make it harder to pick off the euro-stragglers. If the governments had listened, his defenders say – by which they mean "if Berlin had listened" – the eurozone debt crisis might have been solved months ago.

For many weeks this summer, Mr Trichet fought a long rearguard action – supported by President Nicolas Sarkozy, who detests him – to defeat the German Chancellor Angela Merkel's plan to force banks to share part of the pain of buying out Greek, Irish and Portuguese debt. Mr Trichet was forced to give way, in part, last month. The complex formula agreed in Brussels for imposing a voluntary "haircut" on the banks was largely of his devising. It appeared to have done the trick until this week.

Jean-Claude Trichet is not a banker; he was not originally trained as an economist but as an engineer. He is a classic product of the French administrative elite, a graduate of the grandes écoles who rose through the ranks of French ministerial offices to become deputy head of the IMF, governor of the bank of France and then governor of the ECB. In other ways, Mr Trichet does not fit the usual pattern of the French mandarin classes. He came from a left-wing, artistic family. He loves poetry. He was a moderate activist at the time of the May 1968 student and worker revolt.

Although he has always been a non-elected super-official, he has the charm that might have made him into a successful politician. He has something of the Clinton-Blair-Chirac talent for making strangers feel not just at ease but important and interesting. But Mr Trichet also has a capacity to make something of a fool of himself. When appointed ECB governor in 2003, he said in English, "I am not a Frenchman." He was awarded a foot-in-mouth prize for unintentional political humour in the UK. (He also went on, however, to win The Financial Times's "personality of the year" award for his management of the early sub-prime crisis in 2007.)

Jean-Claude Trichet was born in Lyon in December 1942. He was educated at the Lycée Condorcet in Paris and at an elite engineering college, the Ecole Nationale Supérieure des Mines at Nancy. At the time of the 1968 student revolt, he was at Sciences-Po, the training ground for the French political and administrative elite in Paris. He went on to the most prestigious of all French adminsitrative finishing schools, the Ecole Nationale d'Administration (ENA).

Despite his left-wing family background and youth, Mr Trichet worked as an aide for the centre-right President Valéry Giscard d'Estaing in the late 1970s. By the early 1990s he was head of the Trésor – or tax-raising and spending – department in the finance ministry. He was also one of the chief French negotiators before the Maastricht treaty in 1991 and therefore a midwife of the euro.

Trichet (and France) argued at that time that the euro could not survive if it was a currency with no political foundations. There must not be just a single European currency but, at the very least, a harmonised EU fiscal and economic policy. The Germans, fearing that European economic governance would really mean French economic government, refused to countenance any such idea. One of the consequences of the present endless crisis has been the collapse of this German veto. But the process of moving towards a quasi-federal management of the eurozone has been too slow and too chaotic to tame the markets.

Mr Trichet became a public figure for the first time in 1993, when he was appointed governor of the Bank of France, which was about to be made independent of politicians. He pursued a very "German" policy of a strong franc and anti-inflationary monetary orthodoxy which infuriated both right and left.

As governor of the ECB, Mr Trichet was also accused of being "more German than the Germans" and being obsessed with inflation rather than growth. On his watch, however, the notional deficit and debt ceilings in the eurozone were smashed not just by the naughty Greeks but also by the French and by the virtuous Germans.

Mr Trichet, whose career has been one of 40 years of almost unbroken success, will retire at the end of October with "his" euro threatened with shipwreck, if not already broken on the rocks of debt and indecision. His fault? Hardly. His critics insist, all the same, that his gaffe this week sums up his inability – and not just his inability – to understand the psychology of the markets.

His successor, Mario Draghi, former Italian central bank governor, is in many respects an Italian Trichet: a super-civil servant who has never been elected to anything. Mr Draghi was, however, vice president of Goldman Sachs in Europe for five years. For once, having the words "Goldman Sachs" on your CV may be something that even euro-enthusiasts can welcome.

A life in brief

Born: 20 December 1942, Lyon, France.

Family: Son of a poet, at 22 he married the diplomat and translator Aline Rybalka with whom he has two sons.

Education: In 1964 he graduated from the Ecole Nationale Supérieure des Mines de Nancy before training at the Institut d'Etudes Politiques de Paris and the Ecole Nationale d'Administration (ENA).

Career: He began his career as an engineer before joining the Treasury department in 1975. In 1987 he became director of Treasury department and censor of the Banque de France. He was appointed governor of the Banque de France in 1993. Since 2003 he has been the president of the European Central Bank.

He says: "The euro is not in question: it is solid, strong and credible. The euro has kept its value for over 12 years."

They say: "Trichet loves to talk with the opponents of policy. If you disagree with him, he will try to convince you." Olivier Garnier of Société Générale

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