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Sunday, June 15, 2003

Just What the ECB Needed

I haven't really got a lot to say about this, perhaps I'm just lost for words, or perhaps it's already too hot here in Barcelona. This couldn't be happening to the ECB at a worse time. The fact that the bank, as an institution, has proved incapable of responding with any degree of urgency to the growing problem in Germany, and now seems completely unable to resolve this one as swiftly as it deserves, does seem deeply indicative of some profound identity problem. I have no idea at all whether or not Monsieur Trichet is guilty as charged, nor do I care particularly, but what I do know is that his name should have been off the candidates list immediately the problem emerged. But then, maybe having a single currency to fit all sizes does mean sub-optimal policy all round!

After a three-year ordeal that has blighted his ambitions to run the European Central Bank, Frenchman Jean-Claude Trichet will find out on Wednesday whether he has been cleared or found guilty in a banking fraud trial. The Bank of France governor is the already anointed successor to ECB President Wim Duisenberg, who has delayed his July 9 retirement to keep his seat warm until the judge in the Credit Lyonnais fraud trial in Paris has delivered his verdict. But unless Trichet, on trial with eight others over alleged complicity in slanting the former state bank's accounts in the early 1990s, emerges with a complete acquittal he is expected to lose the ECB race and his current job may be threatened too. ''If he doesn't come out whiter than white, he will have to abandon the ECB and resign from the Bank of France, so there will be two posts to fill,'' said a French ECB watcher, asking not to be identified.

The succession at the ECB, which sets interest rates for the 12-nation euro zone, has been a source of uncertainty for the global economy at a time when Europe's biggest economy Germany is in technical recession and growth is stagnating elsewhere. Under a deal brokered by European Union finance ministers in April, Duisenberg agreed to delay the first handover since the ECB was created beyond his 68th birthday to buy some extra time. The Dutchman had originally planned to stand down on July 9 in accordance with a deal struck in 1998 -- ironically, at the insistence of French President Jacques Chirac. But that original deal came before Trichet was charged with complicity in the publication of misleading Credit Lyonnais accounts while he was head of the French treasury a decade ago. Trichet has denied the charges but the lengthy legal process has cast a cloud over his prospects of replacing Duisenberg. And the Frenchman suffered a further setback in February when the prosecutor sought a suspended jail sentence in the trial.

Technically, prosecutors can appeal if Trichet is acquitted, delaying the process for another six or 12 months. Yet doing so would display a level of independence from political pressure that until now has rarely been seen in such high-profile cases. If Trichet loses his legal battle, the search for a French candidate to replace Duisenberg will begin in earnest. Paris has the right to nominate a Frenchman for the job under a politically sensitive deal carved out with Germany in return for basing the ECB's headquarters in Frankfurt. So far France has refused to acknowledge the existence of a Plan B or talk about alternative candidates if Trichet falls. But speculation has focused on former ECB vice president Christian Noyer -- even though many consider him unlikely because ECB statutes ban reappointments -- and Jean Lemierre, head of the European Bank for Reconstruction and Development. The head of French bank BNP Paribas, Michel Pebereau, is seen as another man to watch even though he has denied interest.
Source: MSNBC

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