Trichet helped boost Eurozone financial system

Like many in a position of authority at this time, Jean-Claude Trichet, president of the European Central Bank will not be judged on his entire record, but rather on how he managed the Eurozone through what has been described as the worst international financial crisis in history. On this, his record is mixed at best, but only some of the fault is his own.

Trichet will step down from the European Central Bank (ECB) when his term in office expires at the end of the month. He has received great credit for keeping inflation in the Eurozone firmly in check — in line with the mandate of the Bank — during his eight years in office. His focus served the Eurozone well in less turbulent times.

But, at the last meeting of the ECB that he chaired, last week, the Bank decided not to cut interest rates — a decision that is hard to understand at this time of stagnant economic growth. Not only will lower interest rates boost the Eurozone economy, it will also ease some of the pressure on those countries and companies struggling to service their debts. The cut is needed now, but the argument that won the day was that by not immediately reducing rates and if the Eurozone economy weakens further, the option to take this action is still on the table. Trichet has correctly argued that fiscal and other policy responses to the financial crisis are the responsibility of national governments and other Eurozone authorities. He has nevertheless done what he could to strengthen the Eurozone financial system by providing banks with liquidity and buying the debt of governments struggling to meet their obligations.

On balance, Trichet has done what he could within the limits of the mandate of the ECB and his own instincts. However, he has not made the job of his successor, Italian Mario Draghi, any easier.