Greetings and welcome to the Open Forum. We are going to be talking about euro
and whether the euro, whether it can survive. Is Europe at a parting of the ways? Is it possible that the euro might fail,
as the controversial U.S. Ambassador John Bolton almost seems to hope? All of
these questions we want to discuss today. We are considering the possibility
of bankruptcy of states because of high public deficits. Public finances are in a very fragile state,
and it’s possible that the weakness of the euro might further contribute to
the weakness of national economies. The euro vis-à-vis the Swiss franc
has lost a great deal of value. So we are going to be talking about that.
Now, turning to my guests, Jean-Claude Trichet on my far right.
He is the President of the European Central Bank, called the
president of the Euro. He is in favor of a strong
monetary policy. He has come under fire because of
the use of bonds and state debt. It’s something that is being criticized,
and Jean-Claude Trichet is going to be talking about that. Jean-Claude Trichet is also asking
for fundamental changes within the Monetary Union. Also to my right, Nouriel Roubini. He is a professor at the Leonard
Stern Business School. He has been perhaps unfairly called “Doctor
Doom,” “Mr. Crash” because he foresaw the crisis. And now he is saying it doesn’t really
matter what the European Monetary Union decides for 2013.
What’s important are the next three months. On my left, I have Patrick Odier.
He is a shareholder or a major partner in Lombard Odier Darier Hentsch & Cie Private, a Geneva bank.
He has thousands of workers, 20 branches present in all of the important
financial centers of the world. And since 2009, he has been president
of the Swiss Banking Union. He is concerned about the appreciation of
the Swiss franc and also is thinking about the Swiss franc’s relationship
with the euro. We also have Wilhelm Hankel who is professor
for Monetary and Development Policy, and one look at his book
makes his position clear. His books are called, for example,
“Euro Crisis,” “Euro Lies,” and Mr. Hankel is often called a euro fighter. He also calls himself a European
and a believer in Europe. And with our final member from Greece, we have Alex… [Dimitri Papalexopoulos],
who is an entrepreneur, and he has studied in Harvard.
He is an electric engineer. He is a very important man in the
Greece construction sector. He is CEO of Titan Cement Company. And while other companies have really
suffered a great deal from the Greece crisis, he is seeing things slightly more
optimistically because he has expanded to Serbia, Bulgaria, and also
the United States. So these questions are how can we save
the euro and the Monetary Union? What’s happening with the international
financial markets as a result of the euro crisis? And what is the
impact on Switzerland? So let’s begin by talking about
the challenge of the euro. Put the question differently.
If we look at the past few days, we can say that things are looking slightly
better for the euro. People have foreseen a rising value. Patrick Odier, are all of
these words redundant? Well, I think we can speak English. To answer this question in English.
Yes, you can speak German or English. Let’s do it, by courtesy to our panelists,
let’s do it in English. I think we can absolutely not jump out of
our seat by joy because there is a short term movement of the currency today.
I think what we see and observe is really an emotional behavior in the market that
is very much influenced by short-term news and perhaps indication.
But what remains to be done really is fundamental reform of the coordination
process among the European currencies so that the markets in general can again find
some trust in what is happening long term in this currency. We are talking about reform. We will come to that.
But what about the specific proposals on the table? There are suggestions
for saving the euro and the economies.
Your country, Mr. Papalexopoulos, is the first one that was helped.
Has that helped you at all? Good morning. I will also speak in English. Greece is clearly in a difficult position. We have been living for several years above our means, spending more
than we were earning. And now, we have to face
the consequences. So the first thing that Greece needs
to do is get its house in order. And I’m glad to say that in the past year,
with the help of the European Union and the International Monetary Fund, we have made huge strides forward. So the first thing for Greece
is to get its house in order. Beyond that, I think it’s very important
for Europe, looking ahead into the future, to find a way to further integrate and move forward so as to face
the problems of the future. Because 20 years from now, we’ll be
facing different problems and the position of Europe in the world is
going to be different. And if we have managed to solve the problems
of the euro until then, we’ll be in a much better position.
Will you manage to tackle the problem? Do you think Greece can
solve those problems? Speaking as the only engineer on the panel,
I am the only non-economist on the panel, I’m reminded of an old joke that
says, “The optimist sees the glass half full; the pessimist sees the glass half
empty; the engineer sees a glass that’s twice as big as it needs to be.” So I don’t think we have a choice.
We will. Next to you, there is someone who you
wouldn’t classify as an optimist. Mr. Hankel, you’ve brought an objection
to the court against the billions that have been promised as help, but does that
mean that you feel that these efforts are bound to fail? Well, if I can speak in German to you,
I come from a country which is still suffering from the tragic mistake of seeing
a government trying to make public savings and pay back debts.
That was the government before Hitler came into power in Germany. And we have seen since this disaster that
it makes a big difference whether an economy saves. If it saves, it needs to cut expenditure,
income, and it might, to a great deal, for its credit as a debtor. But it doesn’t really affect its capacity
to be able to pay its debts back. And like my neighbor on my left, I believe
that the efforts to make a bailout fund are resting on a fundamentally wrong
assumption which will lead economies into deeper trouble. All of the debts, which has been taken
out up until now and there are many of them, not only will they not be able to
pay it back, but we will also see the end of the euro. Well, your criticism has been very severe.
You called the euro “a living corpse.” Well, my criticism is not only one of
a German economist but that of a democrat. A country is made up, if it wants to
help its citizens, of two parts. It has a budget and it has its currency
and it has to use both of those to create as much prosperity in its
economy as it can. And if you take one of these parts away, one of these legs which an economy stands
on, then the other one won’t and we can see that this leaves the state with
an incapacity to help itself because the currency is European and
the budget is national. The European currency obeys the laws of
17 states with different objectives. And what most terrifies me is that two-thirds
of these states are actually bankrupt.
So it’s doomed to failure. So I want to see budget and currency
being put back together again. That can’t be done in a monetary union. You called Jean-Claude Trichet
an undertaker in this context. I would give you the opportunity, Mr.
Trichet, to make your position clear and how you feel that the euro can be saved. I will speak English also
as you, if you permit. I would give you some figures. We have created the euro 12 years ago, a little bit more than 12
years ago it started and… Again, no time for complacency.
I’m not explaining that everything goes well.
And we have to work hard. Work hard individually.
The countries that have a program have to work on a debt program and we
can tow that every quarter. In the program, there is no
hair cut or rescheduling. And let me remind you that although the
last 20 years the IMF intervened in a large number of cases, more than a
hundred cases, in 80 percent of the cases, the adjustment program succeeded
and there was no hair cut. So again, you have to understand that. And it is not in our program.
The working assumption is that the program will succeed.
And of course, as said Nouriel, it depends very, very much
on hard work being done. Cultural reforms and the measures that
were not taken in the past have to be taken now.
And there is no doubt individual good behavior is of the essence, but of
course, surveillance has to be improved. I mentioned myself a quantum leap because
we should avoid the repetition of what has been observed.
It’s true in Europe. It’s true in advanced economy as a whole.
So we all have hard work to do if we want to be better off.
It sounds very good that we have hard work to do and you say that we
need structural reforms. We need a better surveillance supervision
and also sanctions for the countries who do not behave like they should.
But don’t you think that’s kind of an illusion because it also means that
European states, they have to have people talk to them and that they lose some
sort of also financial sovereignty? And that is something that worries a
lot of nations within the Eurozone. The paradox is that it was foreseen from
the very beginning the Stability and Growth Pact contains an element
of constrain on the sovereign parliaments. There are sanctions if
you behave improperly. I had to explain that myself to
my constitutional court in my country of origin because they were saying, “How
could you accept that not only the monetary policy becomes single monetary
policy but also the fiscal policy is under control?” And I explained
it’s normal. It’s normal because you need, as Professor
Hankel said, you need to have some kind of quid pro quo.
You have a single currency. You have not a political federation.
You have to have a framework. But we had no framework. And then because everybody was practicing
benign neglect, we did not follow the framework and we were ourselves on the
front line to say in 2004 and 2005 you are forgetting what is essential. EMU, there is an “E.” The goal of the “E” is the
Stability and Growth Pact. Professor Hankel, in contradiction to your…,
says that probably, we should just forget the whole thing.
Greece should be thrown out or leave stability and growth pact the
European Monetary Union. What would be your ideal solution, Professor
Hankel, to this situation which would improve the situation?
I think goodwill. President Trichet has lots of goodwill but he is very short on facts.
We have a crisis because we have states who are very close to bankruptcy
or actually bankrupt. That’s not something that you can gloss
over and that’s not something that you can hide. We have done something in creating monetary
union which is terrifying in my eyes because nobody in the history of
the world has done something like this. All unions or systems, whether you are
talking about the Nordic Union, the Gold Standard, Bretton Woods, the Latin system,
these were outer — these only affected the outer exchange rates.
In the Eurozone, we have given away the currency and given it to people who do
not have any democratic accountability at home. And while President Trichet is right in
saying that we need budget surveillance, that means the democratization of the
system because it is coming from a non-democratic institution,
not the national parliaments. We therefore have a constitutional problem
in Europe, which leads us to ask the question was it a smart thing
to introduce the Monetary Union? The answer is simple.
If you give up the Monetary Union, then in all European states, you have
the budget that belongs to the parliament and the currency that belongs to the
Central Bank at the same level. And there are two possibilities
within the Lisbon Treaty. Greece or any other country can go into the other group of countries in the EU with a free-floating currency. Or another possibility is that we all go
back collectively to a system which brought prosperity to Europe for 40 years,
which was the European exchange rate mechanism, where every country was free
floating but there was a basket, the ECCU, and I would plead I would be in favor
of the euro going back to the ECCU. Mr. Papalexopoulos, does this mean that
it’s best to go back to the old times? Is that a real possibility
for your country? It is an option. A wise man once told me, “You never
try and make a decision during a crisis.” Then we have to wait for quite a
long time to take a decision? But what has happened is that we have gone
through the worst crisis as a world and as a developed world in at least
three generations. And a lot of stresses that pre-existed — pension reform that had not been
addressed, education reform, youth unemployment — a lot of the stresses
have come to the surface and have, together with the crisis, created much
more trouble for the European Union. Ultimately, the European monetary system
has brought a lot more positive than it has brought problems. Yes, in the worst crisis of our times, it has created a lot of stresses
and are difficult to deal with. But there is more to be gained by trying
to fix it than giving it up. And I think Europe will be richer for it and Greece will certainly
be richer for it. Leaving the European Zone is not and
should not be an option for Greece. And I would like to add one quote which I
read from the head of the — it’s actually a quote from Jean Monnet, one of the founders
of Europe, and I read it in an interview by the Governor of the Central
Bank of Switzerland, that says, “Europe will be forged in crisis,” said Jean Monnet 60 years ago, “and it will
be the sum of the solutions adopted for this crisis.” So the crisis might be the crucible
for Europe, a newly forged Europe. If we look at all of these issues, the
bailout fund, the restructuring, other measures which we haven’t even mentioned, where do you really see something
that can help? As a country which is not a member of
the Union, you will allow me to be quite humble in any recommendation.
But — I will allow you., I think the fundamental issue is the discipline and the quality of the economic
policies that have to be yet be coordinated in Europe so that
big differences do not last. The big differences do bring uncertainties
about the ability of the European Union to go for its main priorities
in a reasonable delay and then creates in turn market uncertainties with regard to its currency.
So again, it is, as Jean-Claude Trichet said, it’s not the euro crisis actually.
If you look at relationship dollar-euro, you can also look at it from
that point of view. There is nothing in there.
It is a problem of some policies lacking in some countries, very well mentioned by
one of the most concerned countries so I won’t repeat but this is it. And again, I am not that sensitive
to the “ant democratizeone” arguments because I think that if there
is such a common will to stay into a common Europe, the weaker countries could benefit,
I wouldn’t say from lessons, but at least from help from other countries
in making their policies. If Greece does not generate enough revenues
to pay for its debt, maybe some countries, some help coming from Europe
can show the right way and help make the transition.
Longer term, this does not take away the democratic process of that country.
Short term, it avoids the worse. Nouriel Roubini, are you as optimistic as
the previous speakers, or do you agree with Paul Krugman who said that the European
dream has become a European nightmare? Well, I wouldn’t say it has become
a nightmare, but I think that everybody in the Eurozone recognizes that this crisis
has been a major challenge to their Eurozone and has to be addressed. And I’m among those that actually believe
that there are benefits coming from the Monetary Union so if we can rescue this
Monetary Union, I’ll be in favor of it. I’m not in favor of breakup.
But we also recognize the problems. And I think that when Monetary Union was
formed, the idea was no country is going to have its own independent
monetary policy. No county is going to have its own
independent exchange rate because you’ll have one currency, the euro.
The Growth and Stability Pact said that there is going to be fiscal discipline
in terms of deficit and debt, and the argument was that since you are not
going to be individual countries, market economic policies, monetary,
fiscal exchange rates, what’s going to keep the convergence of economic performance? Because
you need convergence of economic performance.
It’s going to be that there will be an acceleration of the structural reforms that
we need the convergence of economic growth and performance.
Now, that was the idea. The reality turned out to be different,
at least in my view, in two dimensions. One was that on the fiscal side, in spite
of the rules, those were not abided and the discipline was not imposed
and therefore, countries had — it started with Greece — lack of fiscal discipline,
and in some other cases was that private debt eventually became public debt when
the housing problem went bust and there was not enough recognition that actually,
debt trouble can start in the private sector and then end up
in the public sector. So that was one set of issues
that was not recognized. There was no real enforcement
of the fiscal discipline. And the other one was that there was
not enough acceleration in the structural reforms in the countries needed.
Germany did it. It took them a decade but it did not occur
at the speed that was necessary in the periphery so there is now beginning
of economic divergence. And historically, successful monetary unions
have been also things that lead to a greater amount of political union and also ones in which there is a greater
amount of some form of fiscal union that a different system most of them.
And again, Eurozone did not go in the direction of full political
or a fiscal union. So those are the kind of the
challenges we are facing. Those problems, in my view, are resolvable,
but they are going to take a huge amount of varied sacrifices
and structural reforms and changes to make sure that the region becomes cohesive so
that the one currency and one monetary policy is going to be one size
fits all as opposed to not. And it is a challenge and it’s a risk. In five to 10 minutes, I am going to open
up the discussion for the public. So Nouriel Roubini, you’ve just said
that there are major challenges. What about Switzerland? Switzerland
isn’t part of the Monetary Union.
It has a strong franc. The export industry is
suffering from that. Advice from you can change the market. So we await your advice on what Switzerland
should do in this situation. Well, I don’t know if I would give directly
a policy recommendation, but in some sense, of course, in periods in which
there is trouble in the Eurozone or the global economy, people look at areas of
stability, currencies that are more stable or that have gone into gold.
But one of the safe havens has been actually the Swiss franc.
So as long as there are pressures in the Eurozone, then people might decide
to sell euros and going to francs. And on one side, that’s beneficial.
Switzerland has a traditional comparative advantage in financial services and
capital flowing to Switzerland might be beneficial.
But like other countries that see a capital inflow, the currency appreciates.
That appreciation leads to a loss of competitiveness of export sectors
and therefore becomes something that has to be managed.
And one of the responses that many countries have had to excessive amounts
of capital inflow that lead to excessive appreciation is try to resist that appreciation
to some degree by intervening in the foreign exchange markets so to make
sure that appreciation is not becoming excessive. Some emerging markets, and I don’t think
that’s going to be the case for Switzerland, have gone all the way out in
the direction of even of imposing capital controls.
Of course, that doesn’t make sense for Switzerland that is a country that is based
on capital flowing in and out freely to take advantage of its comparative
advantage in financial services. So, Switzerland is still an area of stability
within Europe, but it’s also facing the challenges that pressure that
come from the countries around it can put excessive appreciation pressure
on its own currency. Jean-Claude Trichet, when you visited Switzerland
last time, you didn’t want to talk about the Swiss francs.
Maybe you could do it now, just among us? I don’t forget that the Swiss franc came
from French currency and that is what is very well kept in order, I
have to say, over 200 years. I was always very, very
[cross-talking] That’s a side remark.
By the way, the second governor of Banque de France was a Swiss citizen. I’d never comment on exchange market, whether it is the Swiss franc
or other currencies. And Mr. Odier said what he thought
— Don’t disappoint me, Mr. Trichet. He thought on the relationship
between the U.S. dollar and the euro. Let me only say that when I look at real
economy in Switzerland, I see remarkable, remarkable results.
Remarkable results. Switzerland is now, in terms of production
and GDP, at the level it had before the crisis so the
crisis has been erased. And I also see that unemployment remains
even there is — there is never time for complacency in this domain.
But again, it is the relatively low level of unemployment is also the proof
that the economy is working. But that being said, let me say
one thing, if you permit, Madam. We are speaking, when we speak of
the euro area, of 331 million people. We are speaking of a very vast economy. Very vast, of course, in comparison with
Switzerland, but very vast in comparison also with the U.S.
We are of the order of magnitude of the U.S.
And if you look at growth in the U.S. states, you have, I can tell you, in 2009 the fastest growing U.S. state
was going at 6.6 percent. It was Oklahoma.
And the lowest, the slowest growth was -6.4, Nevada.
Difference? 13 percent.
So part of what we consider as features that are negative for the euro area as
a whole are the normal feature of a very, very vast economy. And it is true also I was, I have
to say, impressed by that. It’s true also for unemployment. In Europe, clearly, we have a big level
of unemployment in some countries and much lower in The Netherlands, for instance,
are very good, 3.7 percent, but North Dakota is at 4.3 and Michigan at 13.6. So you have also very big differences.
That doesn’t mean that we do not have a lot of hard work to do in Europe.
And in that respect, we are the most, I would say, eloquent, if I may say.
We are talking for a quantum leap in surveillance of the economic policies.
But we have to take care of figures and not consider negative necessarily.
Germany, during all my time at the beginning of my job, I was told Germany
is the sick man of Europe. Germany does not grow.
It’s an immense problem. The periphery is going
fast and not Germany. And I was saying Germany is working
on its own competitiveness. Now, it’s paying off.
Allow me to interrupt, Mr. Trichet. I can feel your enthusiasm for
the European spirit, but I’d like just to close discussion on Switzerland
because time is running up. Yes, I understand that.
So Mr. Roubini, did you want to say something on that behalf or
just answer to Trichet? Yes.
On the point that President Trichet made, there are differentials within the United
States states but there are two important differences.
One is that traditionally, there is much more labor mobility so if there is very
high unemployment at one state, people pack and they go to another state.
So that adjustment is less in the Eurozone where, for a number of reasons,
language, culture, mobility is less. And two, U.S. is a fiscal union so if there
is a shock to one state, the system of taxes and transfer reduces the impact
on the income of that state coming from that particular shock to
growth and employment. So those are two features that are not the
same in the European Union that make the U.S. a more optimal currency area. Well, I see that you are reluctant to
speak about Switzerland or perhaps you’ve said what’s most important already.
I would also like to ask Patrick Odier for his opinion.
Switzerland has had many discussions that talked about negative interest,
the gentleman’s agreement. The speculation would be stopped.
One has the impression though we don’t really know what’s going
on in Switzerland. How do you judge the situation? Statement,
first of all, Switzerland is considered as a safe haven for reasons
that I was glad not to be — and thank you for saying it.
Now you did it nevertheless. Well, yes, but I think we should recognize
the fact that some policies are successful and perhaps be as intelligent as lucky
from time to time, but we have been both. Second, I think that the fact that we are
considered as a safe haven from a currency point of view also, not only from a
country point of view, has had, as a consequence, the reduction of the cost of
capital into a country which has a very high cost of labor.
So if you combine a low cost of capital with a high cost of labor, you improve the
competitiveness of the country and you do not reduce it only because of the
height of the Swiss franc. So one should be very careful
about that element. Third point, I think we should recognize
that Europe has an absolute paramount importance for Switzerland.
We are the second largest client of Europe, after the U.S. Europe is 60 percent of our exports. Europe is 80 percent of our imports.
We have absolutely no interest in having high volatility in the exchange rate between
the euro and the Swiss franc but we have strong interest to have a rather
long term, stable, and rather strong currency rather than weak currency.
Hence, any solution that at this point would speak about coupling the Swiss franc
to a weaker currency would be a mistake from a theoretical point of view and very
dangerous from a pragmatic point of view. So all in all, I think Switzerland has
all interest to contribute to the debates, perhaps help in some instances.
I was speaking, for instance, of the international financial architecture where
I think Switzerland plays its role, make it safer so that confidence
can come from that angle. But Switzerland has to defend its macro
policies that it has done in the past and which have created that stability that has
some cost long term, which is the strength of the Swiss franc.
Maybe an additional comment. The influence of a weak euro on
the Swiss industry is obvious. We have to be very careful that we maintain
the competitiveness of our industries. Now, this is distinguishable
between branches. There are branches that burn more today
because or thanks to a weak euro than others.
But our export industry suffers. I think rather than trying that Switzerland
can have an effect on the euro-Swiss franc’s currency, which is not
the case, neither a bank nor a national bank can have, only the market can have
and the market through confidence, I think we should concentrate in that country to
make sure again that all our policies ultimately lead to stability, reduce cost
of production, improve efficiency, and make sure you have social responsibility
by enterprises and financial actors. Wilhelm Hankel, just to conclude before
we open the discussion, what’s your assessment of the situation
in Switzerland? Well, it’s just what it is. It is evident that Europe can work without
a common currency, even without a commonly regulated market. Politicians always say that size is
some kind of decisive category. What’s decisive is competitivity,
creativity, and stability. Size doesn’t have anything to do with it. And the whole background of the crisis
and globalization, et cetera, has shown that small currencies can always survive
if they have internal stability. Internal stability is key in
a globalized world as well. And the question that we have to answer
in Europe is to what extent is the EU and the euro creating stability? And I will have two questions here because the transferring of sovereignty
and surveillance means a weakening of national democracy, and that is
something we in Europe rely on. Mr. Papalexopoulos, would
you have anything to add? A comment.
Switzerland has the wonderful benefit of strong and trusted institution, an
excellent education system, and an extroverted economy for decades. It would succeed under any
monetary conditions. That is not the true of
many other countries. Well, there is a lot of hope that
you are expressing from Greece. And this is my keyword to hand over to
you, ladies and gentlemen, any questions on the euro, the bailouts, and anything
you would like to say, raise your hand. Somebody will hand the microphone to you.
There is a gentleman showing up in the third row.
Please stand up and word your question as soon as you’ve got the microphone. Roving microphones please upfront here. And please say to whom you are
addressing your question. I’m Mark Luce.
I live in Davos. And a question to Mr.
Hankel. How would you think one could opt out of the euro in concrete terms? So the question is what is the opt-out
scenario from the Eurozone? Well, indirectly, it’s entrenched in the
new Lisbon Treaty every state can opt out, can leave the Eurozone.
It’s entitled to do so. And that means either the states to
be rescued today prefer to leave because they cannot meet the requirements
related to the rescue. That would mean a national disaster so one
way is for those who are over-indebted today and on the verge of bankruptcy to
leave before they have to proclaim bankruptcy and that would mean they would
join a club that is also part of the European Union by finding other countries,
such as the Baltic States, Poland, and Hungary, to take them into a system
of their own exchange rates with the possibility of reshuffling debt and
regaining international competitiveness through structural programs, as Mr.
Roubini suggested. Second possibility, we go back collectively
to the situation we have before introducing the euro, into a European
system of exchange rates and all the states would have the same
responsibility democratically and economically to take care
of their performance. Now, they would have the opportunity to
coordinate their exchange rate policies and that would seem to be to me the
only reasonable solution for a democratic Europe in freedom.
And we’ve had a successful Europe for 40, 50 years. Thank you.
Question in the middle, gentleman. Please stand up for
you to get the microphone. I have a big problem and that is the
world leaders, they talk to me through the television, right? And there are people I know who are pushing
the agenda of fake terror using the media. And I wanted to ask the panel and actually
direct it towards Mr. Trichet not because I think you are involved necessarily
but because I think you have access to the people who are aware of
what’s going on and are letting these things happen and who can
do something about it. So I just wanted to ask if I could maybe
have a few minutes of your time after this meeting maybe on your way to your next session
in the car or something because I am actually quite — So you
used the Open Forum to get a personal invitation from Mr.
Trichet. Yes, I am actually demanding somebody here, if I may politely ask, because what
I am saying is quite serious, as these events are happening, people
think it’s real. So I don’t really know whether I can ask
any of my guests to give you a personal invitation, to be honest.
This is a security issue and your question doesn’t really get us
involved in the discussion. Unless someone of you says, “Yes,
I have time for this.” Yes, I know, I know, but it’s also
very important and I know that the world leaders who are here, for instance,
Mr. Sarkozy, if I were to be able to talk to him for five minutes, I’m sure that we would
be able to end this whole situation quite easily.
I respect your wish to speak to the leaders in person but I know that this
is quite difficult and none of us is in the position to give you this permission.
So maybe I ask you to give the time for other people to ask questions that
get involved with the discussion. Okay.
Well, I am very disappointed, but — I’m sorry.
I’m sorry you are. There is nothing I think we can do.
Sorry about that. Kristoff De Haan from Thalwil
in Switzerland. A question for Mr.
Odier. I am surprised to see how much speculation plays a role here, especially short-term
speculation based on millisecond processes as far as the entire question of exchange
rates is concerned or currencies. And the question is whether a transaction
tax wouldn’t help to contain this problem. Thank you for the question.
The speculation has nothing to do with what we are talking about in the current
situation, as you probably gathered from the various comments made. We are talking about the implied effect
of policy difficulties on a currency and we are not talking about
manipulation of the market. We are talking about the thrust
in general of this currency. Nevertheless, the question is important
and I think what we can say can be illustrated by a few figures.
First of all, we have observed a very big increase in the volume in the currency
trading during the last two years. Ninety percent of that volume or close is made outside of the financial sector
or outside of the banking sector. It’s made hence by operators that may
have very, very different objectives. One of them could be to protect
future sources of revenues, i.e. hedging.
So the difference here of impact of speculation and the use of the currency
market for other than negative speculation that is positive speculation by protecting,
if you wish, future revenue is difficult to make. The second aspect is that as you could
see, speculation and it’s clear that speculation will always exist.
It’s embedded into the market freedom and I think it is good because speculation
also ultimately, when not exaggerated, if I wish, if you wish, can lead to
the reduction of costs to the ultimate beneficiary of capital as well, not only
to one currency trend but also to the reduction of cost.
There are sellers and buyers making transactions.
And finally, what I can say on speculation is that if you look at the tax solutions
that you were referring to, first of all, at the origin, they were not mentioned
for purposes that had to do with fighting, as you know, speculation, with other aspects.
And second, the practical aspect of putting a tax on speculation is
extremely, extremely difficult. And it has not only then a negative aspect
which is a theoretical aspect of possibly increasing the cost of capital
by putting taxes at the wrong place. But particularly, it has also a difficulty
which is on which transaction do you think this tax should be put,
a transaction that you would believe are negative speculation transactions. Very difficult issue.
Another question, it is said that major investors in hedge funds bet on insolvency
of Greece and risk premiums rise as a result and the situation
will be even worse. Are you saying there is a minimal
influence or do you think this is a problem? There has been
exaggeration in some less liquid markets by operators that
were concentrating on one trend in the market, i.e. negative trends, positive
then negative for the target. That’s absolutely certain. I think this has been recognized and you’ve
seen some countries taking measures in this respect in the direction they can
take positions, and this is rightly so. But ultimately, these are only measures
that have to be short term. Long term, nobody will ever, unless
market freedom is not a principle on which this world wants to base itself, nobody
will ever be able to constrain that kind of transaction.
Thank you, Patrick Odier. I would like to take a question
from the back of the room. Perhaps someone showing there.
I can see your hand in almost the last row. Can we get a microphone there
to the very back of the hall? Very back. Would you raise your hand
again once more? Further back even.
Wilhelm Hankel, you wanted to say something briefly to bridge the
gap here on speculation? Well, I just wanted to add to what Mr.
Odier has just said. We always have speculation
as related to risk. When there is risk, there is speculation.
We shouldn’t deny the risks, so it doesn’t make sense trying to
get rid of speculation. We all know that vultures always show up
where there are dead corpses or where it’s sinking and they are very important for,
well, how shall I put it, for the economy of… Wonderful metaphor, Wilhelm Hankel.
I think the microphone has arrived in the meantime at the back of the hall.
My name is Nagul. I have a small question.
Beginning of the discussion, it was said that the next three months
will be crucial. I think Mr. Roubini expressed this.
Can you perhaps elaborate on that? What has to happen within
the next three months? Well, my argument was that the European
have decided now on mechanism to deal with crisis, say, after 2013 possibly
to restructure public debt, possibly to restructure bank debt.
But we are facing still right now a severe financial distress in
some parts of the Eurozone. As I pointed out, we need
to restore growth. You might view in some cases
like the problems of Greece. Even if they do everything right, their
public debt is going to end up at 150 percent of GDP in the best scenario. Argentina, Russia defaulted
when it was at 50. Therefore, we need an orderly restructuring
of this debt and we should do it sooner rather than later.
In the case of the Irish banks, the problems of their bank debt are also
things that have to be dealt and so on. So we need official resources. We need policies to restore economic growth
and we have to restructure in an orderly market-friendly way debt levels either in the private sector or public
sector that are unsustainable. Kicking the can down the road and pushing
the problem for three years from now, in my view, might make things worse
rather than better down the line. So we have to accept some of the pain and
some of the difficult decisions sooner rather than later. Thank you. There is another question somewhere in
the center of the hall, somebody showing up there.
Please wait for the microphone to be handed to you so that we
can hear your question. My question was the following. We have had a debt crisis, a
private sector debt crisis. We now have a public sector debt crisis. And this morning’s conversation has focused
on the need for growth to enable the communities to work their way through
this crisis and the responsibility of governments to behave properly
in that scenario. But no mention has been made of the business
model which caused the crisis, which was the banking model. The banking model in America and I would
dare say universally created the crisis. And I’d like to ask the panel whether they
are confident that we are near enough to a restructuring of this malfunctioning
industry to enable it in the future to pay its parts in restoring a proper role
for banking in the economy. Who would you like to
answer your question? Please pick one panelist.
Pick one panelist? I’m much too modest to do that. Mr. Trichet, we have one volunteer.
Mr. Trichet is the volunteer. What about Herr Trichet? And Mr. Roubini
hasn’t had much to say in America about the failures of the system
which emanated from our country. If you permit, I could only say, first,
of course, that you are absolutely right. What we are experiencing are the consequences
of the most dramatic financial crisis since World War II, which itself, had the central banks themselves
and the governments not reacted properly and rapidly, would have turned out to be
the worst crisis since World War I. That’s the reality.
And of course, all lessons have to be drawn.
We are speaking, as you have mentioned yourself, of course, of the necessity to
draw all lessons for the fiscal policies and economic policies in general
and sound policies. And we have and we are drawing in the
present moment as far as we can all lessons to have a financial system which
would be much less fragile, much more resilient, and will permit to avoid to
be placed in this extraordinary clumsy situation in which the advanced economies,
we have to recognize that, put themselves, starting in ’07 with the start of
the turbulences and particularly in the intensification of the
crisis moment in wait. So we are working, I have to say, with
a consensus at the global level and with all the emerging economies, which is
very important, on improving the rules. We have what we call Basel III, which is
a very, very important change of all rules for financial institutions.
We are creating on both sides of the Atlantic and elsewhere in the world
special entities that are dealing with systemic risk and what we
call macro-prudential. I mean it’s work in progress.
A lot of work has already been done. A lot, a lot remains to be done. And it is absolutely clear that we have
to, I would say, draw all the lessons from both the private financial sector
and the public authorities. We are all called to deliver. Well, I’ve got a situation I was fearing,
all of the panelists who wish to answer the question, so we’ll make an exception.
We’ll have a statement from Mr. Roubini and Mr. Hankel and then we’ll
move on to the next question. We have another go for now.
Mr. Roubini. Yes.
We have discussed a lot budget deficits and public debt.
But I think that the gentleman was recognizing that part of this recent
financial crisis derived from excessive debt and leverage in the private sector,
especially among financial institutions, banks, and others, excessive risk taking,
system of compensation of bankers and credit was not optimal, and it led to
a situation which then led to credit bubble, asset bubbles that went bust.
And then part of the fiscal deficits derived from the fact that we needed
to backstop and bail out bank and other financial institutions to prevent this
greater recession from turning into another Great Depression.
But there is an element of we want to stop this.
We’ve had too many banking crises, too many situations which finance is
not properly regulated and supervised. And if we are going to have another
financial crisis, the backlash against remark is against globalization, against
free trade could become severe. So the agenda that President Trichet
discussed of reforming the system of supervision and regulation of the financial
system is critical to make sure that this kind of things do not happen again
or they are not… what has happened this time around.
Wilhelm Hankel. Well, my answer would be
somewhat different. The Eurozone has a two-wheel brake for
a wheel rather that a four-wheel brake. It contains, it deals with public debt but
it has left a full freedom for private debt. There is no regulation of private debt.
There are only public debts and that’s something that’s become clear.
Countries such as Ireland, Spain are far more privately indebted than they are
publicly indebted, and other countries hits at about the same level but it’s
not as bad as these two countries. So the only solution is either regulation
needs to be extended to the private sector, the private banking sector, or it’s necessary to go back to national
controls, which prove themselves to be very effective in the past,
in Switzerland as well. As a banker, Patrick Odier, you
must have something to add. The question is right and the
answer is absolutely clear. The financial sector is undergoing
a tremendous change in its organization today. The regulations also in the private
sector have increased tremendously. The risk is rather that they go too far
in the wrong directions too quickly. You wouldn’t be surprised my saying this. If Switzerland has one advantage of
a difficult situation, not being part of the G20 discussion is probably that this has
allowed Switzerland to decide in advance of many other countries on what measures
should be taken to avoid those things. As you know, the Swiss banks, the big ones,
will have to double their capital not more than or less than that.
They will have to double their capital, and this has been decided
and has been accepted. The Swiss banks have introduced a
new regulation system and all those standards have now been put in place.
And finally, the sector itself globally has deleveraged.
That means the risks that these banks really own today, I’m talking about the
new risks, is much lower than it was in the past.
So I think we are going in the right direction and we can say the financial
structure is going to be much stronger today than it was in the past.
Thank you, Patrick Odier. Some raised hands have been up for a
long time down here in the front. Can we have a microphone please? Hello, Peter Gabriel and I’m from
the Bodensee, Lake Constance. I’m the world’s smallest statesman.
I’m responsible for a family and I’m scared when I have situations in the family,
which is similar to those that we are seeing at the moment.
And I see that the community is something that manages to run itself.
And I am happy when it works. So that was more of a statement
than a question. We had more questions down
here on this side. Next to the camera, the lady
next to the camera. Hi, I’m Juliet Samuel from
City AM Newspaper. I have a question for Mr.
Trichet. You talked about price stability and how the ECB had delivered, and you mentioned
Germany as an example. But I wonder what you make of the fact that
in some of the peripheral economies, there wasn’t the same low inflation that
you were talking about and in fact, in Ireland, you had negative real interest
rates that helps to inflate the housing bubble but has caused so many problems.
So I just wonder on your response to that. — self that we had responsibility
of the EU as a whole. It’s a single currency, of the price stability
at the level of the 331 million people of Europe. And I explained that in Germany because
Germany was working on its own competitiveness. After Reunification, Germany had
lost a lot of competitiveness. This hard work that Germany was doing,
the German economy was doing on itself was misinterpreted at certain moments as the
proof that there was something wrong. It was not wrong.
It was the hard work to regain competitiveness.
That’s the reason why the German, particular national inflation, was, as I
said, a little bit below the average in the euro area.
Other countries were in a situation which were different in terms of cycle,
also different in terms of work on their own cost and they might have now precisely
to regain exactly like Germany did in the past the competitiveness that… lost.
And it is precisely the objective which is pursued with the adjustment program that
I support in particular in the case of the country you have quoted, which have
the support of the international community as well as the support of Europe. Mr. Roubini, did you not say, in connection
to this, that it’s necessary to be more courageous and have
higher inflation in Europe? Just following on from what Mr.
Trichet has said. Well, no, my point has been that there
is currently the risk in the periphery of the Eurozone the necessary fiscal austerity
and the necessary structural reform are going to lead to a continuation of
the recession and that recession might lead to deflation.
And we know from the experience of Japan that deflation and stagnation
is very dangerous. And I pointed out that actually, avoiding deflation and restoring
growth is also important. And in that context, I would argue that
one of the difficulties that while Germany, being über competitive, can leave
the euro between 130 and 140 for the periphery of the Eurozone, the
lost competitiveness, a weaker value of the euro will be desirable and necessary
as one of the many ways of restoring competitiveness.
And that would be consistent with having easier monetary stance that is not the view,
of course, of their authorities in the Eurozone.
So those are some of the things that have to be supportive of greater economic
growth of the periphery: avoiding deflation, restoring growth,
restoring competitiveness, and that might require a weaker euro.
Another question here on the 10th row on the left. Mikhail Schtutz.
I come from Baden and I’ve got a question relating to the Swiss situation.
Last year, the Swiss National Bank entered into the currency market boards
a lot of euros in order to try and drop the exchange rate of the Swiss franc.
Now, my question to Mr. Odier is that given that failed, do you think that
a country such as Switzerland should carry out such intervention? We’ve seen such negative consequences. Yes, the controversial policy of the Swiss
Central Bank buying euros, the result is, of course, disappointing, but the fact
is that the National Bank took its decision in all independence and I think
this independence is absolutely necessary. It took the decision on the basis of the
risk of price stability, rather deflation than inflation must say, and I think
it corrected its course of actions very quickly as well by stopping, intervening
once it’s noticed that it was useless. The result is bad.
No need to say. But whether this was correctly, this was
a prerogative of the National Bank to intervene or not, I’m sure that every
central banker would recognize that it is the role of a central bank to make sure
that it takes whatever action is needed once the perception of the price
stability is negative. The end result comes probably from the
fact that intervention went too far too quickly, but it’s not the direction
in which it went. And as you could see, the National Bank
deeply realized that it was without effect and stopped intervening. I think what the consequence is that as
soon as a central bank starts to intervene by saying so too loudly, the market will,
by definition, react against it. We can see Mr. Hildebrand’s position
in the Swiss press today. He couldn’t be on the
panel with us today. Otherwise, I’m sure he would answer
that question himself. We have time for two more questions.
One at the front in the middle and the other at the back in the
right-hand corner. Yes, sir? Can we have the
microphone here at the front in the middle? Hi, my name is Michael Zoler from Germany.
I have a question. We heard a little bit about that
external influences rather than only internal influences have impacted the euro
and obviously the currencies, so which is the competitiveness of the Eurozone as a whole
compared to emerging markets like China. Now, countries like China seem to play an
increasing role in buying bonds at depth in failed countries like
Portugal and Spain. And my question to the panel, especially
to Professor Roubini, will be how do these interventions of large state buyers impact
the competitiveness of Europe in the mid and long term? Well, we don’t know yet exactly how much
China or Japan have bought euros and European bonds. They’ve claimed that they may be supportive
and certainly to them, financial stability in the Eurozone
is as important as to anybody else. But to me, some of what they have been stating
in public is just a concern that if things become disordered in the Eurozone,
then the euro would weaken, and since China’s currency is semi-pegged
to the U.S. dollar, that will lead to an appreciation of the Chinese currency.
So I see it almost like a form of intervention to prevent the euro from weakening
and actually verbal intervention to boost the strength of the euro rather
than actual real factual support of bonds of the Eurozone and so on.
Whether that’s going to occur or not, we’ll see in the data.
But so far, it looks more like they are worrying about the RMB coming in too strong
if the euro weakens the relative dollar and they are tied to the dollar.
Last question, the back in the right and then we have to draw a close with this. Paul Carol, I’m a journalist with Reuters.
My question is for President Trichet. You started off talking about your record
in delivering price stability. One of the risks that business leaders
have been talking about here this week is uncertainty about inflation. And I just wondered, what we’ve just seen
today, inflation picking up in some German states, and how much of a concern is that
for you and do you think central bankers elsewhere in the world, not just in
the Eurozone, are doing enough to tackle inflation? Thank you. Let me perhaps say first that I am in
the… period so nothing of what I say can be interpreted in terms of future monetary
policy in our next meeting of the [cross-talking] We
respect this. No, no, but I say that for Reuters
in particular and for the journalists that are here. And let me only say that we, like all
other central banks of the world, have to cope with, from time to time, with increases in prices of oil,
commodities, global prices. We have no direct influence
on those global prices. But we have the responsibility of
what we call the second round. And we have to deliver price stability in
the medium term and that’s the reason why we care for the second round.
But that, which is the repetition of what I already said, is not to be interpreted
in terms of monetary policy decision.
Thank you very much. So a difference in the public. I know that you have many more questions.
I feel that a great deal has gotten unanswered.
But unfortunately, we’ve almost run out of time.
Mr. Trichet has to leave us. Maybe others will be able to stay
here for a little longer. You might be able to speak
to them personally. — to the next panel.
One or two statements. Where will the euro be in half a year?
Where will the European Union be in half a year? One or
two sentences. I would say we will continue to do the job
to exert our responsibility and as I said, we have done a lot and a
lot remains to be done. Nouriel Roubini? I think that the issues that are being
faced by the Eurozone — growth, competitiveness, financial sector trouble,
public and private debt — have to be resolved.
They are not going to be resolved in the next three or six months.
They are going to be resolved over the next few years.
But the next few months are going to be quite important in terms of what individual
countries are going to do on their own and what the Europeans as
a community are going to do to try to facilitate a more orderly resolution
of this problem. So it’s going to be a medium
term kind of resolution. Patrick Odier? I think that
the seriousness with which the authorities in Europe and within
the government concerned are taking this situation and is there and I have all
reasons to believe that it cannot be sustainable.
Therefore, that in the next 12 to 18 months, solutions will be found. Wilhelm Hankel? Well, if you
find yourself in a dead-end street and there is no way out other way
than backwards, you have to go backwards. And I think that it’s up to the European
leadership to think how we are going to get out of this dead-end street.
I think we need to look towards a similar solution as we have in Switzerland.
Europe is big enough for a number of currencies, not just one.
History is read looking backwards and written looking forwards.
In the currency, euro has had its first major crisis.
It has brought a lot more good in the first 10 years of its existence
than it has brought problems. Looking ahead, we live in an increasingly
interdependent world, which has good sides with globalization but also major challenges
with the emergence of China and India. And looking ahead, that interdependence
means that going ahead with the European Project, including the Eurozone, making
a success of the Eurozone, is far more likely to improve Europe’s lot 10 or 20
years from now than going back and giving up.
Dimitri Papalexopoulos. I’d like to say thank you to all
the members of the panel. Thank you very much indeed. And thank you to you, the audience.