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Thursday 4 December 2008

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How times change: the ECB has become the very model of a modern central bank

I don’t suppose many of my readers took part in the European Central Bank’s tenth birthday celebrations last week — but if I’m wrong about Jean-Claude Trichet’s taste in columnists, then bon anniversaire, monsieur le président, though I can’t quite bring myself to add beaucoup des retours heureux. It is remarkable how the standing of both the ECB and its French boss have risen in recent times: it makes me feel sorry for Trichet’s late predecessor Wim Duisenberg, the world-weary chain-smoker who bore both the brunt of market scepticism about the fledgling euro and the relentless machinations of Jacques Chirac aimed at displacing him in favour of any available Frenchman, but preferably Banque de France governor Trichet.

Well respected in his previous role as head of the Dutch central bank, Duisenberg became ‘Dim Wim’ to the ECB’s detractors, but clung to the presidential chair until late 2003 — when Trichet actually became available to elbow him out, having been cleared of fraud charges relating to a scandal at Crédit Lyonnais. But what a difference a crunch makes. The euro has strengthened as the world has lost confidence in the dollar, and that shift has been reflected in relative perceptions of central bankers — even to the extent of apparently reversing cause and effect: since ‘elder statesman’ Trichet took charge, says the Sunday Times, ‘the euro’s reputation has been steadily enhanced’. In the Duisenberg years, as the euro sank for reasons of sentiment that had little to do with the central bank, the ECB was seen as indecisive, lacking in authority and politically hobbled by comparison with Alan Greenspan’s mighty Federal Reserve and the ‘independent’ Bank of England. Now, Greenspan is blamed for fuelling the asset-price bubble with too much cheap money, and the Bank of England has been dented by Northern Rock and paralysis in the London inter-bank market. The ECB, by contrast, is lauded for its boldness in pumping liquidity into the money markets last autumn and thereby — the argument goes — cushioning the impact of the credit crunch on the Continent by comparison with the way it has hit the Anglo-Saxon economies. Trichet himself has attracted favourable comment for his firmness in declaring that, with eurozone inflation running at 3.6 per cent against a target of 2 per cent, the only way euro interest rates can move next is up. Attention to the strains placed on boom-bust euro-economies such as Spain’s by membership of the single currency has correspondingly diminished. None of this has yet led to a return from the dead of the campaign for British membership of the euro, but as confidence in our own institutions continues to sink, stand by for a revival.

More articles from: Martin Vander Weyer | this section

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