The European Central Bank (ECB) gets a new chairman this weekend when Frenchman Jean-Claude Trichet takes over from "Mr. Euro" -- Wim Duisenberg. The switch will give the bank a new look at the top but probably not much in the way of a change in policy. That's the consensus of analysts, who say the chairman is constrained by the structure of the bank and that there's not much more it can do to promote growth anyway. RFE/RL takes a first look at the ECB's new man and Duisenberg's mixed legacy.
Prague, 31 October 2003 (RFE/RL) -- The European Central Bank (ECB) gets a new chairman tomorrow (1 November) when Jean-Claude Trichet replaces the outgoing Dutchman Wim Duisenberg.
Trichet, the former head of the Bank of France, will serve an eight-year term. Duisenberg leaves after five years, having led the bank since its inception in 1998.
Experts say that, despite obvious differences in the men's style and personality -- Trichet is said to be active and engaged, while Duisenberg is often aloof and distracted -- the switch will not lead to any major changes at the bank or in monetary policy.
The Frankfurt-based ECB is responsible for managing the euro and controlling inflation within the European Union's 12-nation euro-zone. The bank's chief weapon is raising or lowering the interest rates it charges member banks on euro loans. When the economy is slow, it lowers rates to stimulate lending and promote growth. During boom times, it raises rates to discourage excessive lending and dampen inflationary pressures.
Jose Luis Alzola, a central-bank watcher at Smith Barney in London, said it makes little difference who runs the European Central Bank since, he said, all of Europe's central bankers tend to think alike.
"In Europe, all of the central bankers [have] known each other for a long time -- more than 20 years. They think alike. There is not a significant difference among them. They are sometimes classified [individually] as 'hawks' or 'doves,' but I don't think there is a major difference among them at all," he said.
Alzola said he expects Trichet to continue Duisenberg's priority of keeping euro-zone inflation under the bank's 2 percent target -- even at the cost of possibly hindering economic growth through maintaining relatively high interest rates.
Alfred Rosenstock, chief of European economics at Nomura Securities in Frankfurt, agrees. He points out that Trichet and Duisenberg have worked closely together and that Trichet himself was personally involved in formulating the bank's policies. "There's continuation. It's very smoot," he said. "There's a continuum in personality and views. Duisenberg goes, Trichet comes in. But he doesn't [really] come in [as a new person], he just moves over one chair."
Trichet's takeover has long been in the works, following an informal agreement between France and Germany that the ECB's next leader would be French. But Trichet's position had been in doubt until recently amid accusations he failed to prevent a banking scandal that cost French taxpayers billions of dollars. A French court this year cleared him of those charges, paving the way for his advancement.
Duisenberg leaves a mixed legacy from five years in charge. On the minus side, Duisenberg will probably always be remembered -- rightly or wrongly -- for having underestimated the effect in Europe of the 2001 economic slowdown in the U.S. While the U.S. central bank, the Federal Reserve, was massively cutting interest rates at the time to blunt the effects of recession, the ECB kept euro rates firm. Economic activity soon slumped throughout the euro-zone, and the economies have still not fully recovered.
He was also known for his poor communication skills, earning him the nickname "Dim Wim." In October 2000, he once infamously said the ECB would not defend the euro on international currency markets. The comments caused a run on the currency and precipitated a short-lived crisis of confidence.
On the plus side, Duisenberg oversaw the successful introduction of euro notes and coins on 1 January 2001 -- gaining him a second nickname, "Mr. Euro." It was the biggest monetary changeover ever attempted, and it went off mostly without a hitch.
In a larger sense, he leaves a currency that is widely considered strong and stable -- no minor achievement given the fact that the euro spans 12 national governments, each with its own monetary and fiscal policies.
Alzola said the legacy is mostly positive. He said Duisenberg should be judged not for a few misplaced remarks but for taming euro-zone inflation -- the chairman's main priority in office. "He has been criticized very much for his communication skills -- or lack of them. But I think he should be judged by how successful he was in delivering price stability," he said. "This was the mandate, and he has been very successful."
This week, Duisenberg offered a defense of his relatively strict economic policies in remarks to European finance ministers in Venice. He placed blame for Europe's rising national budget deficits and slow growth not on interest rates but on the policies of the member states themselves. He said many of the problems they have now could have been foreseen and planned for during the boom years of the 1990s.
That may be true, but part of Trichet's job will be to try to get those boom times back.