ECB President Jean-Claude Trichet
From FXPedia
Before becoming President of the European Central Bank, Jean-Claude Trichet held several key positions in the finance department of the French government. As Director of the Treasury Department of France and then Governor of the Banque de France, Trichet was very involved in the work leading up to the establishment of the Eurosystem and the implementation of the European Central Bank System in 1999.
Biography
Jean-Claude Trichet was born December 20, 1942 in Lyon, France. A graduate of the University of Paris in Economics, Trichet also holds degrees in mining engineering and worked in the private sector before joining the French civil service.
In the early 1970s, Trichet was named the General Inspectorate of Finance, eventually becoming the Director of the Treasury Department in 1987. In 1993, Trichet accepted the position of Governor of the Banque de France and was reappointed to the same position in 1999.
After serving as a member of the Council of the European Monetary Institute, Trichet was named to the Governing Council of the European Central Bank in 1998. On November 1, 2003, Jean-Claude Trichet was named President of the European Central Bank.
Challenges of the Position
Given the number of sovereign nations and the conflicting agendas bubbling barely below the surface of the EU, few would argue that one of Trichet’s greatest challenges is simply to keep divergent viewpoints in check. Indeed, when Trichet was first named as successor to the previous president Wim Duisenberg, market watchers who knew Trichet expected him to prove a more capable policy maker and better consensus builder than Duisenberg. The hope was that he could avoid some of the public relations and communications fiascos that marked Duisenberg’s tenure. [1]
In the Spring of 2004, while still new to the Presidency, Trichet was able to slow the ascent of the super-hot Euro without sending interest rate shock waves throughout he economy. Much of the credit was attributed to Trichet’s straight-forward and direct approach in discussing the actions the ECB felt necessary to return the euro to stability; the faith in Trichet’s leadership capabilities seemed well placed.
This praise was short-lived, however. Those that only months earlier had praised Trichet for his frankness were suddenly accusing him of misleading the market to believe a rate cut was eminent when in fact, the ECB was not about to change the existing rate. The incident in question began a week before the regularly-scheduled interest rate-setting meeting in April 2004.
In an interview with a German newspaper, Trichet suggested that the bank was considering a cut in the interest rate in order to stimulate consumer spending. This, naturally, set off a flurry of activity in the markets as it seemed that a rate cut was now a certainty. Some of the major institutions – including Barclays Capital and the Bank of America – even went so far as to alter their rate forecasts as most experts had actually been expecting the ECB to hold the line on interest rates. [2]
Imagine the surprise then when upon emerging from the meetings Trichet announced that, “The situation does not call in any respect for a change of our interest rate, and we will see during the next meetings whether or not there is information that will call for any change.” [3]
Now if there is one thing that the markets cannot stand it is confusion and uncertainty, and to say that the financial world was confused and uncertain over this turn of events, is an understatement. To be clear, it was not the fact that the rates remained unchanged that bothered investors; rather, it was felt that Trichet had said one thing but then did the opposite that caused so much indignation. As one currency strategist stated after the press conference, “The tone of the conference took people by surprise. The markets will treat comments coming out of the ECB with more caution in the future”. [4]
Not exactly a ringing endorsement for Trichet’s credibility with market analysts, but some experts feel this incident speaks more to the inner workings of the bank itself rather than an indictment against Trichet. Insiders have made public some of the problems plaguing the ECB, especially the ideological differences between some member nations. By design, the Bank makes decisions by consensus, and in order to gain full agreement, it is often necessary to make concessions to get a vote passed. Insiders point to the April 2004 rate-setting meeting as one example where clashing politics caught the President by surprise.
Those that supposedly know what goes on behind the Bank’s closed doors suggest that Trichet did indeed favor a rate cut of twenty-five basis points and, thinking that he had the votes lined up on his side, felt quite confident in hinting that a rate cut would be approved in the April meeting. When the vote resulted in no changes to the prevailing rate, Trichet was left looking as if he had misled the public intentionally.
Another example that continues to pit nationalistic interests against changes to EU policy is the Common Agriculture Policy (CAP). The CAP consists of a series of agricultural subsidies that guarantee prices to agricultural producers and imposes tariffs on farm products imported from outside the EU. Producers are paid direct subsidiaries and, in some cases, farmers are paid not to produce goods or even dispose of goods to ensure overproduction does not exceed demand to such a degree that it leads to a decrease in prices.
The CAP was first introduced in 1957 with the Treaty of Rome and remains mostly unchanged today. It currently accounts for nearly 40% of the entire EU budget and any attempts to implement revisions to the CAP - which is now seen by many as a by-product of an earlier time and no longer needed – are routinely blocked by countries that benefit from the subsidiaries. France in particular receives hefty payments through CAP and has consistently vetoed attempts to reduce the CAP subsidiaries. This has caused ongoing animosity with countries that do not benefit from CAP but must still contribute a great deal to the program. [5]
Trichet and the Credit Lyonnais Affair
Before Jean-Claude Trichet could even assume the President’s chair, a considerable obstacle looked to scuttle the French government’s carefully orchestrated plan to see the Governor of the Bank of France take the helm of the ECB. Trichet, along with several other officials, was charged with fraud and other irregularities in what became known as the Credit Lyonnais Affair.
Described by some members of the French press as the “worst scandal in French banking history”,[6] the Credit Lyonnais Affair was rooted in some very questionable property investments in the 1990s and the resulting cover-up which attempted to hide the extent of the losses. In July of 2002, Trichet, Director of the French Treasury at the time, was charged with manipulating financial reports to hide the true state of the Credit Lyonnais along with several other bank officers and public officials with allegations reaching all the way up to French president, Jacques Chirac.
Eventually, the French government – also the majority owner of Credit Lyonnais – was forced to provide emergency funding to the tune of over 100 billion francs (nearly £11 billion) of taxpayers money. In June 2003, Trichet was cleared of all charges thus ensuring his eligibility for the presidency of the ECB.
Related Links
References
- ↑ "Europe's Beleaguered Central Bankers - Business Week Magazine, April 2004
- ↑ "Europe's Beleaguered Central Bankers - Business Week Magazine, April 2004
- ↑ "Europe's Beleaguered Central Bankers - Business Week Magazine, April 2004
- ↑ Aziz McMahon – Currency Trader – ABN Amro
- ↑ BBC News - June 2005
- ↑ Another Day, Another Scandal - The Scotsman Newspaper, June 2005
