Abuse in America Our World

currency. The Europeans already had a problem to ensure financial

stability in the euro area as a whole because of the problems of

some sovereigns. That is the problem of financial stability

which had to be fixed. Do you think this deal fixes it? The indications

are good ones. The orientations are comprehensive and baked will be

issues. It is a systemic problem. You have to cover the backstop for

the sovereign and improve the Government's. What is at the heart

of everything is that the crisis, which is a mix of all advanced

economies, reveals your weaknesses. The paradox of the euro area or is

that we do not have many weaknesses as a whole, but individual

countries and economies did not behave properly and create its

fertility. That comes out of an absence of sufficient governance.

You say it has to be a plan that covers everything. There is a part

that books about risk and a part about the rescue plan. But the rare

huge holes. There is said it will detail. Does it really mean

anything. The rescue fund is going to go from 440 be in euros to when

-- billion euros to one trillion euros. It is despising risks, not

producing it. These are Orient Way Asians. They are good. There is no

doubt. But it is hard work. -- Gorry and --. The isn't it time for

complacency because you have to implement all of them. Half of

Greek debt may be written off. Eat I was Irish are no wonder why Irish

taxpayers had to put off their Gympie date and Greeks had only 80

per. This has to be seen through the system implications of all the

decisions that it again. What has been decided by government, not by

us. We took no part in his negotiations. As well as not in the

previous one. It is the responsibility of the governments

involved. What is extremely important is that you have

something which is working and voluntary. Greece is a special case.

It was said very clearly on 21st July and repeated in this case.

are not worried about contagion's about any one who has been to

Ireland, Spain or Italy asking: Why not us next? It is the

responsibility of in debate will entities and the College of the

heads to for the be consistent with what they said on 21st July and

repeated that risk was risk. Everybody recognises that it is a

special place. -- that Greece was at Greece. It is the system which

is at stake. You have been careful to say that this is a decision by

governments. That you were not part of the plan. A lot of people TCCB

should have paid her a much larger part. -- think that the ECB.

Central banks are being to live up to their responsibilities. These

responsibilities a very heavy. When you do you are criticised. We are

living in democracies. We have been criticised, Rolling Stones, or

pictures in Treasuries. -- predecessor as, for instance.

People do not believe that. They so you were not willing to do it

originally and you back down for political reasons. Absolutely

untrue. The German members of the governing council believes that.

do not think so. NZ in cases it was an overwhelming majority and

minority. But all decisions have been taken by the governing council

which is used The Independent. There is no doubt of that in the

month of its purpose. -- which used fiercely independent. Do you

understand it when politicians say that this crisis could have been

stopped if the European Central Bank had responded to the panic.

Had stopped the irrational panic around countries like Italy. And I

remind you that we will be the first Central Bank in the world to

embark on measures on 9th August 2007 for 95 billion euros of

providing liquidity on an unlimited basis on a fixed rate. We were

criticised for that, for this bold as, for this swift decision. It was

five days before every were be recognised that we had a visit

judgement. The governing council of the Central Bank has taken

decisions which were criticised from the start. I would not say at

because we were criticised by its we win this is the Rigi... I would

say that in any case we do not substitute for governments. Do you

think it is true that he the ECB was willing to offer unlimited

support that would solve the immediate crisis? No, because what

counts easy determination and the will of governments to do what is

necessary, taking into account their run responsibilities. That is

what is look at why it all looks at us. And across be, with all the

experience of the crisis, the backing... it is very important

because we're living in the Cup receipts was the decision was taken

in Germany be so is showing the Majority Whip the opposition and

are much more united than was perceived by observers. Taking an

appropriate decision is something which it's very important. A

Central Bank cannot substitute for governments or Parliament. A trust

that everybody knows we are bit without being credibility. The euro

is a solid currency. It is credible for the next ten years. It is

because we are signing the currency. The credibility is coming from the

governments of ECB. Just to go back into the way into this crisis.

There is a thing that there was a lot of complacency before the

crisis from governments, regulators, financial institutions foster but

somehow the ECB has tried to say we have no part in that. In 2008 you

said the euro area did not suffer from major imbalances. How was it

possible to say that when countries like Spain had enormous current

account deficits? The paradox of this situation is that the euro

area as a whole has... this situation much better than the US,

they Japan and UK and other large advanced economies. 4.5 % of public

funds to visit. At the end of this year more than half the level that

you haven't the US or Japan. It is also true for the current account.

On a consolidated basis approximate be balanced. It does not matter in

advanced economies. The stability he and growth pact was absolutely

necessary. We had to use a baby the finances of the individual

countries. We did not change our and rhetoric. It is exactly the

same. You believe that and you have always put it back. Looking back do

you think it was a mistake to go ahead with monetary union without

fiscal union? Without some form of, and finance Ministry that you may

say is necessary. Certainly not. By a rigorously applied the Stability

and Growth Pact, which was part of the treaty to create the euro area.

If it had been rigorously applied we would not be in this situation.

Have applied myself against the large companies in Europe in 2004

amid 2005. They did not want the Stability and Growth Pact to be

applied to them or to continue to operate. They wanted to dismantle

More than that. You had to strive for public finance to be balanced

or in surplus. The first time Spain had actually missed it was in 2008.

The first time Ireland violated it was 2008. That is the reason why we

have always asked for the structural opposition to be

analysed and not only the nominal account situation. And it is

absolutely clear that it is of the essence. If I can go back. We have

a crisis which started in the other hemisphere, it started in the US,

an ongoing crisis which puts into question all advanced economies,

because it concentrates on the advanced economies. All advanced

economies, without exception. Not surprisingly, this crisis operates

as an X-ray. Everything that is unsustainable in the policies of

all advanced economies are put into question very clearly. We all have

problems. Not surprisingly, as I said, here the problem is not the

USA as a whole, is the governance. It is not a new analysis for us. We

have to continue our own analysis. And we are not practising

complacency too much. Neither of benign neglect. It is true that we

were criticised very heavily when we were saying that the Stability

and Growth Pact is absolutely necessary, a lot of economists said

it was too tight a jacket, you should not have it. At a time where

there was a general benign neglect. I don't think that you could see

that we were practising benign neglect. We infuriated governments

and we were criticised by many economies -- economists and

institutions because we were supposed to be much too orthodox.

With the benefit of hindsight, that orthodoxy has been recognised as

probably harmful. President Sarkozy has said that Greece was not ready

for the euro. Do you agree? I would have to say that the decision to

enter into euro was, to enter Greece into the euro, was taken by

all the governments of Europe, without any exception. But with

hindsight, were they wrong? I would say that all governments of Europe,

without any exception, and with the hindsight, they should have applied

rigorously the rules that existed in the EU, rigorously. But at the

time, as I said, benign neglect, benign neglect of the markets, it

was the Government's, individually and collectively, let the thing go.

When we look at the way that the contagion has worked, Italy,

everybody thought the numbers of bouquet for the last -- the numbers

looked OK up until a few months ago. Now the markets are in trouble and

any country cannot cover its debts if interest rates get high enough.

If France is next on that list? Will you still say that the French

government has to act? That it is right that it should lose its AAA

rating? How do you feel about the role of France coming into it?

message is the same for all countries in Europe. Be very

cautious. You have to do what you have to do. And take into account

all elements of a situation. Markets are moving every day, on a

minute to minute, half-day two half-day basis, and you have to do

the job. You have to endure in the medium to long run that they are

right. And that is something which is important. One of the major

lessons of the crisis, which was agreed upon by all advanced

economies, and all emerging economy is, was very clear. First, market

economies are the best way to produce wealth. This is not

challenged. Second, financial markets are much too fragile, much

too erratic and hectic, and we have to make them much more resilient.

That remains true. We walked -- work on all fronts. But if they are

erratic and hectic, that means we come back to the beginning,

precisely the moment when central banks come in and say, this is not

a reasonable view to have of Italy or of France. We are going to put

an end to this panic. It is absolutely clear that for a number

of reasons the credibility of the countries in the euro area has been

put into question when it is absurd in terms of fundamentals. That is

clear. But if it is absurd, why not stop that absurd panic? We are

telling all governments to take all of the appropriate ways of

communicating. One of the problems of Europe as a whole, you have, as

I I er fundamentals than what you have in other countries.

That being said, we have 17 democracies. They have to improve,

and they are learning by doing, if I can say, to improve progressively

their way of running governments in the euro area. But it is clear. I

am totally confident. Because when you look at the various countries

concerned, you know, of course, that their fundamentals are much

better than his more or less thought by some of the observers

from outside. One message that has come out of these 17 vibrant

democracies that you talk about seems to be that although they are

amongst the richest in the world, they cannot come up with enough

resources to solve their own problems, they need to go cap in

hand to China. The rest of the world is looking at us, and I am

absolutely sure that the rest of the world is sharing the view that

I just expressed, that the medium run, it goes without saying that

the fundamental of Europe -- fundamentals of Europe are very

solid and Europe is a very impressive Continent. I have no

doubt of that. I did not hear myself having participated in the

meetings that the Europeans were deciding to ask any other country

to help. Are you shocked that they are now, but the head of the rescue

fund has been to China? No mac. He has programmed his trip for a long

time. He is in the US, in China. We are in a global world. But you

don't think it is embarrassing for humbling? That Europe is going to

China? Not at all. How do you think that the various other countries

themselves in the advanced world finance? We are all on the global

markets. The way that you describe the crisis, it is hard to match

that with what seems to be the reality, which is, for example, why

are the government leaders, at the summit, coming up with a very

detailed, complex ways to increase the leverage of the rescue fund, if

not because they have not got the money? The car provide the

resources in the real world? Thank you. It is normal. It is

normal what is happening? If I can simplify equity, with this equity,

we go to other participants, it is the normal way of dealing.

Everything is very normal? Interest rates are a normal subject for the

European Central Bank. People say it was a mistake to raise interest

rates in 2008 just before the collapse of Lehman Brothers, and

there was a similar mistake this year, raising interest rates twice.

Do you agree with that? Do you think it will be reversed soon?

First of all, I will not say anything about the future. It

depends on the governing council. And nothing but I say should be

interpreted in terms of front -- future interest rates. Many only

say that what is extremely important, in normal times, as well

as in difficult times, is to southerly anchor expectations.

Because if you have expectations, you add to the difficulties of the

time. Inflation expectations are solidly anchored. They have always

been, and remain solidly anchored, in line with a definition, which

protects ourselves against the risk of inflation. Also, the risk of

deflation, and in difficult times, when you have a recession, the risk

of deflation is important. I think that what we have been doing, of

course, all decisions are taken by the governing council as a whole,

it is a team, a strong team, but we thought that it was appropriate in

the circumstances. Finally, you may know that the American President,

when he leaves office, he leaves a letter for his successor on the

desk. Will you leave a matter for your successor? We are in

permanently close contact. We are members of the same team. We are

not... Not in an electoral contest. He took all the decisions with all

of us himself. Of course he will have all that is needed. We do not