Jean-Claude Trichet’s long journey to the top job at the European Central Bank ends on Friday when Wim Duisenberg steps down. But the Frenchman faces an unenviable set of challenges in the euro zone.
Next up for the euro hot seat: Jean-Claude Trichet
Jean-Claude Trichet takes over the reins of power at the European Central Bank (ECB) from the out-going president Wim Duisenberg, the man they called "Mr. Euro," on Nov. 1. It is the culmination of many years of hard work and careful positioning in various posts within the corridors of international finance. And it is a job that he has long been associated with, despite the progress made by his predecessor.
Trichet rose through the ranks of the French public service, holding several high ranking positions in both left and right governments. His career path led him through a number of political posts in the French government’s finance ministry, culminating in the top job at the Treasury in 1987 and head of the Banque de France in 1993. He is also a former deputy governor with the International Monetary Fund (IMF) and World Bank
For the past four years, Trichet remained largely behind the scenes serving on the ECB council as the head of France's Central Bank while Duisenberg, the man who many felt occupied the position tailor made for Trichet, was lauded for the smooth introduction of Europe's common currency.
Waiting in the wings
Wim Duisenberg gives up his position, somewhat unwillingly, this weekend.
Many expected the “chic” Trichet to land the presidency in 1998 when the top job at the ECB was created but he was overlooked in favor of the more awkward Duisenberg in what was perceived at the time as a political stitch-up. German officials had allegedly become nervous over the idea of having a Frenchman at Europe's economic helm, and apparently insisted on Duisenberg, a Dutchman.
Trichet was French President Jacques Chirac's favored candidate for ECB chief in 1998 and when German pressure elevated Duisenberg to the position, Chirac then forced a secret deal on his reluctant European colleagues whereby Duisenberg would retire halfway through his eight-year term.
Partnership deal never sealed
Duisenberg made it clear he was not willing to retire after four years, prompting backroom discussions on a shared presidency. But as the deal was far from set in stone, president-in-waiting Trichet remained conspicuously silent on the subject.
“I have nothing to say on the issue, I have never said anything before and I won't start now,” the Frenchman said recently.
The expected smooth journey to the presidency hit a series of bumps, however, when, three years ago, he was put under investigation and accused of complicity in producing misleading accounts for Credit Lyonnais while at the Treasury during the 1980’s.
The then state-owned bank had a reputation for lending money exuberantly and plunged into the red when many loans turned. It is alleged that government and company officials helped Credit Lyonnais concoct false accounting records to disguise its losses.
Cleared in scandal
Trichet was one of nine men put on trial for their part in the Credit Lyonnais affair, which culminated in a €31 billion ($33.7 billion) bailout by the French government. In the end, the court cleared Trichet of involvement in the banking scandal in June.
Now the job is Trichet’s and his alone. Still, Wim Duisenberg has not bowed out quietly with the end of his term this week. The Dutchman told EU finance ministers at a specially convened retirement dinner earlier this week that the current hard times do not justify a change in the rules laid out in the EU Stability and Growth Pact.
Duisenberg fires off parting shots
"The difficulties that some of you now face were not entirely unforeseen," he said. "Not unforeseen when the Pact was signed, not unforeseen when the conditions were more favorable. You were warned. The rules were not designed just for the good times, but also for the bad.”
Duisenberg added that the difficulties being faced do not provide grounds for tinkering with the Pact’s rules, saying such problems call for their implementation. “The rules are there to help not to hinder efforts to put the house in order. They should be allowed to do what they were designed for.”
“Otherwise I fear the Pact will unravel, the contract with the people will be broken. Without the right foundations, you cannot build a stable house,” he stated.
An oversized 100 euro banknote is held in front of the headquarters of the European Central Bank in Frankfurt.
The stability of Europe's common currency was Duisenberg's most important goal. While there's no indication that this will change under the leadership of Trichet, Duisenberg warned his successor to concentrate on this policy of currency stabilization.
Stability is key
“The best thing would be if he were a clone of me,” Duisenberg said. “My successor must do everything to continue with the idea of stability and continuity because what we and every other central bank needs is to gain and retain the trust of the population.”
Trichet is likely to bring ideas popular with the French government’s views on how the ECB should be run to his new job, with plans for a slimmer administration, more transparent workings and a more realistic inflation target based on the Bank of England model.
Pressure beckons in the euro zone
The long term challenges he will face are the expansion of the euro zone to include the 10 new eastern and central European countries. In the short term he will have to remain firm against those European leaders pressuring for more flexibility of the stability pact.
That this pressure also comes from French politicians will hardly concern Trichet as he now no longer considers himself a Frenchman but the President of the European Central Bank.