Wednesday, June 09, 2010

Jean-Claude Speaks

The markets will focus today on a speech to be made by Jean-Claude Trichet (the president of the European Central Bank).

In the event that he fails to firm up sentiment over the Eurozone and Euro experiment, further falls in the Euro will occur.

As to whether he is able to assuage the market's fears, or display a grasp of reality, it remains to be seen.

In a recent interview with Le Monde he was asked

"If, for some reason, Greece does not honour its commitments, might there be a need for a 'plan B'?"

His answer shows that there is no "plan B" and that, in the eyes of the ECB, Greece will honour its commitments.

"That is not part of our working assumption. Greece must and will honour its commitments. The European Commission, together with the ECB on the one hand and the IMF on the other, is following developments in the recovery programme very closely."

Clearly he and the ECB are disconnected from reality.

When asked about an "Anglo Saxon plot" (please remember these were French journalists) he very politely said no, but then went on to ask for fiscal union.

"Sometimes, one imagines a sort of Anglo-Saxon plot against the euro. What do you think of this?

No, one should be wary of any conspiracy theories. I simply believe that some international investors struggle to understand Europe and its decision-making mechanisms. They have difficulty in gauging the historical size of the European construction and in anticipating the capacity of Europeans to take decisions that are just as important as those taken a few days ago.

Having said that, one should not be complacent: we have some very serious problems and we need to draw some serious lessons. The supervision of fiscal policies, of developments in competitiveness in the euro area economies and of structural reforms needs to be radically improved. We are a monetary union. We now need the equivalent of a fiscal union in terms of monitoring and supervising the implementation of policies on public finances.

Clearly the ECB regards its role as political as well as financial.

It may be all very well for the ECB to think that it should play at politics, if the ECB were a competent and democratically elected body accountable to the people of Europe.

The trouble is, it is neither.

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