It's now been nearly a year since the Jan. 1 introduction of the euro. In an interview with Deutsche Welle, the president of the European Central Bank takes stock of the euro's success.
The euro turns one soon
Wim Duisenberg has been president of the European Central Bank since 1997. During his five years there, Duisenberg has overseen the smooth introduction of Europe's common currency, the euro, and managed interest rates, prices and inflation in the 12 euro zone countries.
European Central Bank President Wim Duisenberg
Recently, Duisenberg has been criticized for not cutting interest rates as agressively as his American counterpart, Alan Greenspan of the Federal Reserve Bank. He also wants members to maintain the rigid guidelines set in the euro stability pact, which prohibits countries to allow their deficit spending to rise over 3 percent of gross domestic product.
In a recent interview with DW-RADIO, Duisenberg took stock of the euro's progress during the current year and offered frank criticism of a handful of member states for not keeping a tight- enough hold on their budget pursestrings.
It's been nearly one year since the euro was introduced in Europe. How would you evaluate the year?
For me, of course, the euro has already existed for sometime longer. But it's true the notes and coins have just been introduced. I would evaluate that unambiguously as a success.
How has the new currency encouraged countries in the euro zone to cooperate more effectively?
That is a slow process, but having one single currency has its effects on all areas of monetary policy -- not only on fiscal and social policy, but even on foreign policy. It brings countries that have the single currency closer together and it does necessitate ever-closer cooperation.
Would you say the euro zone has brought nations together politically?
That's also a process. It is working in that direction. It is working to bring them closer together and it also works already now towards those countries that are about to become members of the European Union -- particularly in Central and Eastern Europe. They will not immediately adopt the euro, but the euro is already a force there. It exerts its influence in bringing those countries closer to the Europe they will one day be a part of.
Do you see the candidate countries joining the euro zone?
They undoubtably will. They will first sign the accession treaty. Then a process will start involving a number of treaties that will have to be ratified by all the parliaments involved. But we are already intensively working at the European Central Bank to integrate them into our work. This involves working with their central banks to prepare them for the new situation. They will have to adjust their legal frameworks in various fields. The financial sector has to be adjusted and adapted -- and that, too, is a long, drawn-out process. But it could happen within five to seven years.
A central part of the treaty would no doubt be the Stability Pact, the criteria now in place for current euro zone countries. Those criteria are now being discussed in European capitals -- especially the three-percent cap on deficit spending. What do you think about suggestion criteria should be softened, especially in light of Germany's economic troubles?
I would be very much against it. The criteria are only just in place. It's natural that there are times when it really bites and causes difficulties for some European countries. Then countries talk about changing it. But I'm one who thinks you should never change the rules in the middle of the game. The fact that some countries are now having difficulty meeting the criteria -- like Germany, France and Italy. It is precisely because of the fact that in the recent past, when everything was going well, they didn't grasp the opportunitiy to better consolidate their public finances. Now, because they haven't done that at that time, they are sitting on their blisters. But that's no reason to change the rules. It's all the more reason to finally do what should have been done long before. Out of the 12 euro zone countries, eight have already reached that goal.
Do you feel undermined by comments by people like European Commission President Romano Prodi, who severely criticizes the stability pact's guidelines?
Well, I can't feel undermined because the ECB, though we are standing and shouting from the sidelines, is not part of the Stability Pact as such. It's the European Commission that is the stability pact's guardian. We support the European Commission in in every respect in their function as the guardian of the stability and growth pact. But as for Mr. Prodi's criticism, let me simply say that I do not share his views and would not have said what he said.
There has also been criticism in Europe and America about the reluctance of the ECB to lower interest rates along the lines of the Federal Reserve Bank under Federal Reserve Chairman Alan Greenspan. Is this criticism justified?
I think not. We have interest rates at low levels which have not been seen in Europe for the last 40 or 50 years. The interest rate levels we have are being determined exclusively on the basis of what we think is best for the euro area and not for any other consideration. Last week we lowered our interest rate even further. Liquidity, money in the euro zone is ample. In no way is the monetary policy stance an inhibition for the resumption of growth and growth of employment.
Does that mean that at some point in the future lower rates could not be an economic tool?
It's sometimes overestimated what monetary policy can do and what it cannot do. Our main goal is to safeguard price stability, thereby giving consumers and investors confidence in the future. It's mainly the lack of confidence at the moment which comes for other reasons -- all the uncertainties -- that we are going through a period of very slow economic development. We have to rebuild confidence and that takes time. You can lose confidence in a day, but to regain it may take a year.
You mentioned lack of confidence and instability. How do you think a war against Iraq would affect the euro?
I can't possibly speculate on that. The main impact we might see is on the oil market and oil prices. That's one of the uncertainties that hangs over our heads, but you can't possibly speculate to what extent it might have an impact on the euro. As far as oil prices are concerned, if they rise suddenly, that would have an impact on our internal price stability. That would be the main impact. If it had a lasting impact, we would react. If it had only a short-term impact, we would do nothing.