The (monetary) future of Europe / Jean-Claude Trichet ex-president of the ECB – Goethe University, Frankfurt am Main, Tuesday 14 November 2017

Jean-Claude Trichet, ex-President of the European Central Bank, spoke at a conference organized by the German-French Society Tuesday 14 November 2017 at the Goethe University. Stephan Rey, one of our members, was there. He posted his notes for your perusal.


The (monetary) future of Europe / Jean-Claude Trichet ex-president of the ECB  – Goethe University, Frankfurt am Main, Tuesday 14 November 2017

The paradox of the Euro area is the stretch between its 19 member countries. Some are incredible „signatures“ in terms of reputation (Germany, the Netherlands) – even better than the US, and others are fighting an uphill battle to come along (Greece, Portugal, Ireland).
Despite the UK and the US telling us that we would never be able to see the Euro survive, it did. This is remarkable when considering that 6 items could have brought it down:

1) Many countries did not respect the Stability & Growth Pact.
2) Europe did not have a proper governance and had no means of controlling cost competitiveness, thus there were sustained divergences of European economies.
3) There was no tool to cope with market challenges, such as speculations done to destabilize the currency and, consequently, the EU economies (the US saw major currency speculations and themselves have a program called TARP to protect against such: from Wikipedia: The Troubled Asset Relief Program (TARP) is a program of the United States government to purchase toxic assets and equity from financial institutions to strengthen its financial sector that was signed into law by President George W. Bush on October 3, 2008. It was a component of the government’s measures in 2008 to address the subprime mortgage crisis. The TARP program originally authorized expenditures of $700 billion. The Emergency Economic Stabilization Act of 2008 created the TARP program.)
4) There was no banking union to better coordinate decisions and the protection of banks.
5) There was no single market.
6) Many EU countries failed to implement structural reforms.

Nonetheless, Europe was able to react faster than expected when confronted with the vagaries of the market. This has been insufficiently communicated to the public. It has proved extremely resilient during the 2007-2008 financial banking crisis (Lehman), according to J.-C. Trichet the worse financial crisis since World War I. This was not so much felt in Germany as it had done its homework in terms of restructuring. The Euro started from scratch and against all odds came even with the US dollar in terms of market volume.  It survived the 2010-2011 credit worthiness crisis of Greece, Ireland, Portugal and then Spain and Italy. The only community that lent money to EU countries in needs (Greece, Spain, Portugal) were Europe and the IMF.

Jean-Claude Trichet saw 6 reasons why circumstances now encourage further strengthening of the European Union.

  1. The Euro confirmed that it was resilient throughout the crisis and the Euro group grew from 15 countries in 2008 to 19 today. The Euro fluctuated less than any ex-national currency before the Euro (Deutschmarks, Drachmas, French francs, Gulden, etc.). The Euro has shown a remarkable capacity to keep its value over time and showed low inflation. Thus its value is better than any national currency for that same stretch of time pre Euro.
  2. People in Europe have confirmed their attachment to Europe. The French extreme right did neither like the Euro nor Europe and lost on that base. 81% in Europe today approve of a single currency.
  3. Emmanuel Macron waved the European flag and won on this basis
  4. Europe has a favorable conjuncture – we are talking real economy because of low inflation. The IMF was foreseeing +1.7% GDP growth in April this year, then increased it to +1.9% while the number is now closer to 2.2% according to the last polls and economic statistics. There is a virtuous circle within European countries that benefit both the countries on their own as well as the Euro group within that Union
  5. US is withdrawing from Europe under the guidance of Trump. Europe now has to defend itself without counting on its big US brother. This brings the people together (a closer military unity has been decided yesterday, seen by many as as big a step as the creation of the European market)
  6. There were little international reactions when red line were crossed: Crimea taken by the Russian in the Ukraine, conflicts in the Middle East and sub sahara Africa. Europe is realizing that the geostrategic stakes have changed and it has to ramp up its engagement. Europe has a higher propensity now to do things together, be it defense, both domestic and borders, fighting against crime, illegal acts etc. There is a high support from the European Court. Shengen space is seen as important by a large majority. The next steps will be to see whether a European budget should be established and more democratic abilities and accountability can be obtained by all its member countries.

BREXIT will hurt, as Britain was a net contributor in terms of fiscal policy. It took part – like all other countries – in all decisions on spending that have been made within Europe. This has still not been communicated clearly to the UK people. Any act that comes needs to be understandable for all and justified. All countries have paid so far their pro rata contribution in monetary policy. Thus all countries pay their share for Greece, it is not solely Germany as one might believe when reading the German popular newsdaily Bild.

J.-C. Trichet closed stating he was proud to have been part of history in the making. The Euro had made it thanks to the boldness of its members, their capability to deliver in times of hardship and the resilience of the currency.


Im November 2017

Stephan Rey, Mitglied von YOUROPEAN e.V.

Der Inhalt des Beitrags liegt in der Verantwortung des Verfassers und gibt ausschließlich die Meinungen, Ansichten und Einschätzungen von diesem wieder.

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