Trichet is one of Europe’s most experienced bankers, having led the European Central Bank through the midst of the financial crisis from 2003 to 2011. He has helped world’s central bankers exchanging their views and diagnosis on the crisis in chairing the Global Economy Meeting of governors of central banks in Basel.Trichet was named “Person of the Year” by the Financial Times (2007), was n° 5 of the “World Most Powerful” in Newsweek list in 2008, and was one of the most “Influential People of the World” in Time Magazine in 2011. Trichet is a Commandeur de la Légion d’Honneur and has been awarded several foreign honours. Lan Anh Vu sat down with Trichet to hear more about his thoughts and experiences on managing global crisis gained over three decades.
My Early Years
My education was both on mathematics and physics as well as economics. I had an engineering degree in the Ecole des Mines and I am graduated in economics from the University of Paris and of the Institut d’Etudes Politiques. After working briefly in the private sector, I attended the Ecole Nationale d’Administration (ENA), of which I graduated with the number 5 out of 100.I worked as an economist when I was a student preparing for entry in the Ecole Nationale d’Administration. I joined the French Civil Service in 1971. I had several positions in the Treasury Department, was Advisor to the French President of the Republic (for Industry, Energy and Research (1978-1981), was chief of staff of the Minister of Finance (1986-1987), and was Undersecretary of the Treasury (1987-1993). I began my first term as Governor of the Bank of France in 1993.
I had many challenges in my career. The two main categories of acute challenges I had to cope with are, first, the necessity to be steady in pursuing desirable long term goals, and, second, the handling of crisis situations. In many of my successive responsibilities – in particular as advisor to the President, as chief of staff of the Minister of Finance, as Undersecretary of the Treasury, as Governor of Banque de France and as President of the European Central Bank – I had to cope with both demanding long term endeavors and crisis situations.
I think it is of the essence to be steady on your long-term endeavor, not to lose sight of what is the ultimate goal that you have, even if you have to go through many difficult situations. It is like a ship which might need to change its course, because it is in the doldrums or because winds are not blowing in the right direction, but which knows where it has to go. For me it was, for instance, have a sense of the long term goals as regards the telecom or the aerospace industry, or as regards the modernization of the French economy, or as regards the European construction.
Another lesson I drew from my career is that you must decide quickly in exceptional crisis circumstances. If you hesitate, you are letting things deteriorate and it can turn out to be a dramatic deterioration. Therefore, it is important to be as lucid as possible in the diagnosis, analyze the pros and cons of the various actions possible but, at the same time, stand ready to decide very quickly. This was an important lesson for the monetary, financial and economic crisis that I encountered.
I would also add one last remark: never forget that when you have a very important responsibility, several hundred million people might be depending upon your decisions. This was true for me as the President of the European Central Bank. You have to stay fully aware of the fact that you are in a very complex multi-dimensional and dangerous world, and that your ultimate responsibility is before the people themselves, before your fellow citizens. A central banker, being independent, has to make up his mind independently. He/she should not be following instruction of any other entity, be it executive branches, private sector market participants or any particular lobby. This is something one always needs to keep in mind.
A leader, in my understanding, must have experience. During his or her career, as in early years as possible, it is good that he or she has experiences of difficult, unpredictable situations and acute crisis episodes. Another dimension of the leader is that he or she must be convinced that the success is always based upon a team and that the most important ingredient is the team spirit. The sense of direction of the leader and the candid communication of his or her vision with the team is a key-part of the success. To have a vision means not to keep it to yourself, but to communicate it with the full body of your team.
We are in a new very highly interconnected economic and financial system due to the advances of Science and Technology – particularly IT – on one hand, and the phenomenon of globalization on the other hand. This has paved a way for a new kind of global interconnectedness between firms, markets and economies.My understanding of the new emerging properties of the present global financial system has been enhanced by the global financial crisis of 2007 and 2008. The extremely rapid contagion to the entire world of the shock created by a single event occurring in one country, for instance the Lehman Brother bankruptcy, was striking. The sequence of ensuing events which would have taken 3 months in 1929-1930’s is now taking place in a handful of half days. After the 15th of September 2008, day of the Lehman Brothers event, you could see significant changes in global finance by the day. The fact that, in our new global financial world, contagion is immediate amplifies considerably the responsibility of the public decision makers. It is necessary to monitor developments with extreme attention and be prepared to act quickly and decisively at the beginning and during crisis. We need to prepare for such events, even while aiming to avoid them.
First, we have to continue to improve our modelling of the economy. We thought we had a set of reliable economic models during time of relative stability. However, during periods when you have large non-linear economic behaviors and complex chaotic phenomena, we do not have an appropriate understanding of the economy and its evolution, both in short and medium term. So, I trust it is important that we continue to work actively to improve our understanding of the economy and look tirelessly for the best economic modelling possible.Second, an extremely important remark is that, if we want to avoid the repetition of abrupt crisis, we have to be aware that appropriate rules, regulations and prudentials are of the essence. This is very important because today there is emergence of a school – wrong in my eyes – which says that we have regulated too much and that we should de-regulate again. I have known a period of intense deregulation and I have seen some of the consequences of excessive deregulation in terms of grave and immediate threat of collapse of the financial sphere in the advanced economies as well as at a global level. Therefore, I think we should not repeat the mistakes of the past, but learn from them, be constantly alert and call for preserving the right regulations and prudentials.
Advice to Young People
My advice to young people is that they should be prepared along their life for the extraordinary, for the unpredictable, for events – whether in science, in technology, as regards the changes in our societies or the evolution of history – that one cannot imagine. They should also need to have their personal long term goals: keep a sense of own personal direction and at the same time, be permanently alert because the unpredictable and unthinkable can happen any time. So, you have to prepare mentally and intellectually, and must be ready to cope with renewed demanding challenges.