- The Observer,
- Sunday June 22, 2003
Step forward the European Greenspan. European leaders have scrambled with an indecent haste to lower Jean-Claude Trichet into the hot seat as president of the European Central Bank.
The current Bank of France governor will take over from Wim Duisenberg as soon as his candidature is approved by the European Parliament.
And so finally, believes the European elite assembled in Thessaloniki last week, Europe will have a financial infrastructure on a par with its rival across the Atlantic.
'He has a very French sense of the status and prestige of the institution. He'll want to invigorate it,' says Chris Huhne MEP who sits on the European Parliament monetary affairs committee, which will hold Trichet's confirmation hearings.
Trichet has the charisma and communication skills that dour Duisenberg lacks. The poetry-loving Frenchman will inject a bit of verve into Eurozone policymaking, just as ex-jazz saxophonist Greenspan managed with the US. That's the plan, anyway.
'Trichet must recognise that the communication strategy of the ECB is problematic and part of the problem is linked to the rigid monetary policy framework. I'm sure this will make his position difficult - so his instinct will be to move away from it,' says Professor Charles Wyplosz of the Centre for Economic Policy Research.
Put simply, the markets hope Trichet's style will reform the ECB's outdated Bundesbank tendencies - a bias towards deflation, excessive interest in redundant monetary targets and lack of transparency over the publication of minutes.
'He will bring a less ritualistic form of communication as he is better able to handle the monthly press conferences,' says Wyplosz. 'And there is nothing to stop the president from saying that the ECB's "close to 2 per cent" target really means from 1 to 3 per cent.'
So there will undoubtedly be a clear change in the style of management, but there are four reasons why the substance might take longer.
First, Trichet has been a member of the ECB's decision-making governing council from the outset. He has some of his own credibility invested in the existing policies. Second, he is no revolutionary. Third, the European Central Bank is constitutionally quite different from the Federal Reserve. Greenspan-style personalised monetary policy is not the European way. Consensus, committees and shadow voting are. And fourth, there is the potential internal battle with Otmar Issing.
The Federal Reserve system allows for a very strong chairman. Greenspan controls the flow of data, information and research to other members of the decision-making Federal Open Markets Committee. That role at the ECB is taken by chief economist Issing, a Bundesbank veteran, often painted as the guardian of the Bundesbank tradition at the Eurotower.
But some economists believe that the ECB's much heralded strategy review was carefully timed to scupper any really radical change by the successor to Duisenberg. Trichet signed up to the strategy review, so it would be difficult for him to greatly change things now.
'His position is constitutionally much weaker than the Fed chairman, so he can't become an overnight Greenspan,' says Wyplosz. 'Equally, he's not someone likely to play second fiddle. Some of the changes he may want to make will probably have to wait till Issing goes [in 2006].'
Trichet's signing up to these policies was hardly forced. He has his forged his own hawkish reputation in France with the strong franc policy. He is the only Frenchman the Germans would accept.
He bought into the idea that the infant ECB had to adopt best practice in the early years as a continuation of the Bundesbank. Only when the ECB was seen as a credible institution could a new European tradition be constructed.
He is likely to move slowly, but expect some changes. He is believed to be keen to make the Bank more transparent and wants more of a sense of occasion around speeches.
He will also oversee a considerable reform to the Bank's decision-making structures as the EU enlarges to the east. A monetary policy committee of 25 will prove too large and unwieldy.
Trichet will represent the start of phase 2 for the Frankfurt institution. He could be the Continent's Greenspan; perhaps he'll choose to be something different.
