Back to Brussels Blog homepage
One Trichet is enough, Juncker says
September 17, 2008
Brussels would certainly be a duller place without the sparkling wit of Jean-Claude Juncker. As guest speaker at a think-tank breakfast on Wednesday, the Luxembourg leader was challenged by an over-excited British questioner to admit that the eurozone economy was in a complete mess. Lest matters grew even worse, the questioner asked, shouldn’t Juncker and his colleagues immediately start arranging the “orderly” break-up of the single currency area?
As the European Union’s longest-serving prime minister and chairman of the ‘eurogroup’, which unites the eurozone’s 15 finance ministers, you would hardly have expected Juncker to answer this question in the affirmative. And indeed, he replied: “No … Something in my heart is telling me that the British will be happy [one day] to join the single currency.”
On the substance of the question, however, Juncker made the point that the disruptions to the individual national economies of the eurozone would surely have been far greater over the past 10 years if there had been no euro.
He listed the decade’s seismic events: 9/11, the Iraq war (which deeply divided European governments), the French and Dutch rejections of the EU’s constitutional treaty in 2005, the global financial market upheavals of the past 13 months. He even mentioned the increasingly worrying political paralysis in Belgium.
“Do you really think the European economy would be in better shape if we had had national currencies?” he asked. Would national central banks in Europe have been able to produce a better co-ordinated response than the European Central Bank and Jean-Claude Trichet, its president, had done during the market turmoil of recent months?
Then came Juncker’s masterstroke. “Would 15 or 16 Trichets be outperforming one Trichet? I don’t think so. Personally, I really think one Trichet is enough, by the way.”
It can’t be that hard to compare the economies of the EU member states in the Euro zone and those that have their own currency. If Juncker is right, the economies of the UK and Sweden should be in worse shape than those of other EU members. But on the other hand, they don’t have Trichet. That might compensate
Posted by: Tijl | September 17th, 2008 at 10:45 am | Report this commentI laughed when I read your piece. Very well observed and tidily put together. In fact, it would seem that only a solid Englishman like yourself could have written the piece - and in that you have my critique.
If we are to compete with the US and China (not to mention India et al) we need to have a unified currency structure. Which by default gives long term stability - albeit at the expense of allowing individual politicians yo yo their economies. Which in my opinion would happen and be detrimental over the longer period the vast majority of us working in the real world.
Posted by: Mark S | September 17th, 2008 at 10:59 am | Report this commentTijl - am afraid your point is impossible to make. Surely the UK and Sweden (and Denmark and others) have benefited thanks to the Euro. The UK, with its large dependence on finance, has beenfited because most UK-based banks (including US ones) are only physically in London - most of their assets and trading is in US and Euro denominated assets - hence Trichet/the ECB is more important to them than UK/king. Also, the EZ has served as anchor/benchmark for many international investors and hence reduce the cost of capital to those peripheral countries.
Posted by: fxtrader | September 17th, 2008 at 1:00 pm | Report this commentA currency has importance only if it serves a large economic zone - that the US, EZ and Japan. (China’s doesn’t because it isn’t tradable)
The UK joining the EZ isn’t an economic argument - it’s a political one.
In a fair report on Euro and Eurozone,TIME MAGAZINE witnessed,months a go,quoting many examples,that the European currency created more problem than solutions.The problem is not that one Trichet is enough.The solution to the problem is:NO TRICHET.
Posted by: stefano de santis | September 17th, 2008 at 3:16 pm | Report this commentyes Stefano, TIME would be writing a “fair report” on the Euro… of course!!! Well except IKB (which is a serial loser, and had be bailed out before in the DMark era), not other EZ institution has gone bust. Unlike of course the brilliant and superior US/UK… Bear, Leh, Mer, Northern Rock, A&L, B&B, HBOS…
Posted by: fxtrader | September 17th, 2008 at 3:37 pm | Report this commentDepends on what perspective this is viewed from.
Posted by: Fred Searle | September 17th, 2008 at 4:46 pm | Report this commentPolitically any criticism of the Euro is robustly defended.
Ask the citezens of the Euro zone however and a different point of view emerges, I wonder who is right.
The UK is doing fine outside of it and long may it continue.
Fred,
Posted by: fxtrader | September 17th, 2008 at 6:20 pm | Report this commentMy point was that part of the reason the UK is doing fine outside the EZ is that it enjoys a freeride thanks to the existence of the Euro.
The ECB has effectively saved and bankrolled London’s financial sector. In any case, I realise it’s pointless discussing this - may I just point towards Mr Buiter’s blog? (a former adviser to the BoE)
The Euro itself is not the main source of the problem. The main source of the problem has to do with the policies and politics of the ECB onthe Euro matters.
On one hand, the common currency helps because it creates discipline among the various governments and political leaders to find other ways of fostering the economy instead of printing money in order to facilitate their political and economic goals. Common currency reduces also other costs related with exchange rate, comparison of prices, indexes, competing with other economies in the world etc.
However, the management of the single currency is at fault here. This does not include only how the interest rates are calculated but it also includes the politics and image of the ECB in insisting on specific policies which do not fit in the current global situation.
Today’s example, while there is a downturn of the Eurozone economies, the ECB keeps on with their routine, keep inflation low even if growth is negative(as some countries are experiencing now) and inflation is already way out of target! We don’t even know if the ECB board is deciding unanimusly on the rates.
As a politics example I can give an old problem that the ECB arrogantly refused to deal with…that is changing the 1 Euro coin to 1 Euro banknote while in the same time eliminating the 200 Euro banknotes which I personally consider useless and the 2 Euro coin. We all know that a banknote increases the optical value of money…however, in Brussels is difficult to see the problems that are created outside of the core of the Eurozone and a silly operational and profit making answer such as “The costs of printing money will increase” I don’t accept it.
Just my personal opinion on the points above.
Posted by: sm | September 18th, 2008 at 9:51 am | Report this commentI don’t think the single currency is not the major factor driving success or failure in the Eurozone economies. Fiscal policy, which is a prerogative of the member state governments, can have a much stronger effect on a country’s economy.
Posted by: Vladimir Dzhuvinov | September 18th, 2008 at 12:42 pm | Report this commentIt is not a question of the performance of one or Trichet but the actual performance of the real economy. During the period since the introduction of the single currency, the eutozone has been the slowest growing region in the developed world falling further behind the UK with each passing year. Jean-Claude Juncker’s heart might tell him the UK will join the Euro but in his head he knows it will never happen.
Posted by: Freeborn John | September 18th, 2008 at 5:22 pm | Report this commentI read this article as a compliment to Trichet - who has at least taken the principled decision of preserving the wealth of 400million EU citizens. Unlike the US who are selling its people down the river - all because of a small group of greedy cowboys. In response to the fanciful comments made one here by a few Englishmen, who continue to spout nonsense in respect to the UK economy versus the EZ. I would rather be a “steady Eddie” in terms of economic growth rather than a “champagne Charlie” (lots of money boom and bust – no money in my pocket at the end of the game..
Posted by: KWM | September 19th, 2008 at 10:24 am | Report this commentKWM: Rants about ‘US cowboys’ are no substitute for economic facts. The UK economy has consistently outperformed the eurozone since the inception of the single currency, and the decision to stay of the euro has been fully vindicated. The UK is indeed on track to become Europe’s largest economy, probably in the late 2030s (when we will still be using the £).
Posted by: Freeborn John | September 20th, 2008 at 11:45 am | Report this commentRight now it is not in the interest of the Eurozone that an infected economy like the United Kingdom joins the Euro.
Posted by: Enrique | September 21st, 2008 at 7:15 pm | Report this commentThe UK has consistently outperformed the eurozone? In terms of creating a bubble, you mean ? Come on, life is not so simple! That the UK will grow (in relative term) for the next 20 years is a great assumption… looked the political and economic climate recently?
Posted by: Denis | September 22nd, 2008 at 10:04 am | Report this commentIt seems incredible that however bad things are in the UK, there is always an englishman to point out to others how bad things are for them. Come on please, anyone who thinks the UK is going to fare better than the Euro-zone in the current economic downturn should have their head examined. The UK (to a lesser extent than the US) has been living on borrowed time for the last 10 years. Consumer spending has been fuelling the economy and the house-price bubble has been fuelling consumer spending. So what happens when the bubble bursts? Well, UK households and companies have their other assets don’t they? Yes lots of equities! And what is happening to the stockmarket? The difference in the euro-zone countries is that households have solid balance sheets with assets that are not susceptible to wild fluctuations. That means that there spending behaviour is less erratic both in downturns as upturns. An what of the government. Well, while the UK budget balance and debt has deteriorated over the last 5 years, the situation is significantly better in the euro-zone’s main economies. Even in France, which british observers love to lambast, debt to GDP has actually fallen over the last 5 years! What of the government’s balance sheet. Well, most euro-zone economies have not gone for UK-style wholesale privatisation over the last 20 years, and that means that they actually have assets, while the UK government has none. When you need money its better to have some assets isn’t it? A final thought, what will happen to the UK finances when the oil money runs out and what will happen to UK balance of payments when oil and gas imports start to soar. I’m pretty glad to be in euroland!!
Posted by: Stephann | September 22nd, 2008 at 5:38 pm | Report this commentWake up UK we are in big, big trouble!
Posted by: KWM | September 23rd, 2008 at 2:25 pm | Report this commentNew Energies and Broadband
Europa and the Americas still has not switched out of Imported Oil and into solar power,wind and water turbines,geothermal,bio-fuels and synthetic jet-fuel, electric cars and trucks and hydrogen fuel-cells for buildings, this is the new economy, but Brussels and Washington D.C. got all of us stuck in the old economy and near bankrupt.
Broadband must be everywhere and mobile, and the “old guard” hates us to be so INDEPENDENT and EFFICIENT.
We need and want the New Energy and Broadband economic tools like water in the desert, so the young generations better run for office, kick the old incompetent and corrupt politicians out and set Europa and the Americas into the New Energy and Broadband economy,new jobs,new solutions, new assets,new profits ,new links,new everything.
Posted by: financialtools1 | September 23rd, 2008 at 5:15 pm | Report this commentThe total liabilities of Barclays of around £1,300bn (leverage ratio 60!) are roughly equivalent to the GDP of the UK. The authorities in the UK and Switzerland – which cannot rely on the ECB – can only pray that no accident happens to the giants they have in their own garden.
Posted by: Stephann | September 24th, 2008 at 8:58 am | Report this comment