Jean-Claude Trichet
Fabrice Coffrini | AFP | Getty Images
Jean-Claude Trichet



Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Jean-Claude Trichet today, Tuesday, September 7th on CNBC’s “Closing Bell with Maria Bartiromo” at 4PM ET.

All references must be sourced to CNBC.

BARTIROMO: Mr. Trichet, good to have you on the program. Can you characterize the Eurozone economy for us today?

TRICHET: Well I would say that we had good results in the second quarter and that is something that drove our own staff to review upward the projections for this year and for next year. As a consequence of this good second quarter we don’t declare victory. We remain very cautious and prudent. We see the rest of the year to be less buoyant than the second quarter with 1% good on quarter, 4% annualized is really for the European over and above the growth potential obviously but we have 0.5% revised upward the growth for this year and 0.2% for next year. So again, we don’t declare victory, we have to remain very cautious, very prudent, and do the job, which is I have to say to continue all of our hard work for redressing fiscal policies in particular and to re-establish a level of confidence, consolidate confidence, which is certainly the most important point in Europe right now. We will see what happens on this basis. Also the important point to be mentioned is this 1% we had in the second quarter, the contribution to the 1% is coming from consumption in Europe and from investment at the level of 0.3% plus a little bit of consumption by governments: 0.7% comes from domestic demand all taken into account and on top of that we had the external side of the coin but which contributed for 0.1%. So it’s not a growth in the second quarter which would be totally depending on the exports and on the outside world, it’s a growth which depends also very much on the domestic demand.

BARTIROMO: This is very important and I want to ask you why the domestic demand has actually increased and when would you expect the export situation to also improve. But let me ask you this because there is a debate going on in the United States about whether or not the Federal Reserve is out of bullets. Ben Bernanke continues to talk about the fact that the Fed will be there if the economy does deteriorate further, certainly in the United States. Do you think the ECB still has bullets?

TRICHET: Well, again, the ECB as you know is extremely attached to its primary goal and its primary goal is price stability. With the idea, which is an idea that is shared by all Europeans and I have to say by other fellow central bankers including Ben that when you have price stability you pave the way for sustainable growth and sustainable job creation. So as far as we are concerned we consider that what we have done at the present level of interest rates is appropriate and I have to say I have full trust in the Federal Reserve to do what is necessary taking into account the situation of the United States of America.

BARTIROMO: But what else could they do? I mean it’s so near record lows.

TRICHET: I don’t comment on the policy of other sister central banks.

BARTIROMO: You have been so articulate about the long term and you have been talking about structural reform that needs to take place for the long term. Focus zeroing in on deficits where in the United States we’re talking a lot more short term. We’re talking about the possibility of further deterioration, the possibility that we would need more stimulus. How do you bridge that gap – what’s more important? Looking at the long term and focused on deficits, or looking at the short term to ensure there’s more ‘oomph’ and stimulus?

TRICHET: Well in our own analysis and again I don’t pronounce myself on the United States of America and I trust fully the US Federal Reserve. Let me say also that I have enormously appreciated the cooperation we have had with the Federal Reserve over the last three years, particularly when we had all to cope with the worst crisis since World War II and the way we could cooperate including through swap agreements has been extraordinarily appreciated by us I have to say. That being said, we consider in the case of Europe that the long term has an immediate impact on the short term because the markets, the economic gauges, the investors, the savers, the household, and the entrepreneurs are of course improving or I would say losing confidence if they don’t have confidence in the medium long term perspective and again we don’t see any contradiction in doing the job to embark in sustainable, for instance medium long term sustainable fiscal policies and improving confidence today, immediately. Which would again help consolidate the recovery and consolidate job creation today. So again, for us, in the case of Europe and at the level of difficulties we have full complementarity in doing the job with a long-term perspective and helping the recovery today.

BARTIROMO: This is a very important point because you can have a vicious circle if there’s no confidence that the policymakers are not in charge of the long term. But what are the structural reforms that are required in order to truly get your arms around the fiscal issues?

TRICHET: I have to say that we have a big difference on both sides of the Atlantic. The US has an economy, which is flexible – it is the mark of the US economy. We in Europe in general, in the 27, also in the 16 of the Euro here, we have economies that are not sufficiently flexible. So the main message is let’s work very actively to have a more flexible economy because it will augment the growth potential of Europe which is in the medium and long term of course absolutely of the essence. We had a program, which was called the Lisbon Agenda – we did not implement, as we should the Lisbon Agenda over the last ten years. We have a new workshop now, which is 2020, and in the next ten years we must work very forcefully to deliver the structural reforms.

BARTIROMO: Those structural reforms – are you talking about pensions, are you talking about spending as it relates to retirement and social security. Tell us a bit about those structural reforms you’d like to see take place.

TRICHET: As you very wisely mentioned, it’s a large scope of different reforms. But I would say first let’s have flexible goods and services markets. We paradoxically perhaps because the ambition of having a single market is the ambition of Europeans since more than 50 years but we do not have yet an achieved single market for goods. In the domain of services we are lagging behind what would be desirable considerably. And compared with the US it’s absolutely clear we are lagging behind. As regarding the labor market we see very clearly that these countries that have embarked on labor markets more flexibility have a great advantage in terms of growth, potential growth, and in terms of lower unemployment. So there we have also to work a lot and then we have also the pensions as you mentioned and all kinds of optimization of I would say social protection. These are major goals for the European Central Bank. The ECB always said that this was very important; the governing council of the ECB said that repeatedly. Now we have this new ten year period which is the 2020 endeavour as I said and we will do all that we can to push the Euro here and the 27 in this direction.

BARTIROMO: What would you like to see from the Basel accord? In terms of capital levels, leverage ratios. What’s most important in terms of change as far as a global standard for the banking sector?

TRICHET: Well it’s a work in progress, as you know. We have very important meetings in the next days. I don’t want to anticipate on these meetings which again are very important with all the advanced economies’ responsible persons, supervisory authorities, and central bank governors, but also all the emerging world. It’s a real global exercise with all the emerging world. I would only say the following – I know that there are a lot of commands, resistance perhaps in certain domain, but let’s look at the situation with maximum level of lucidity. We went through the worst crisis since World War II. Had we not acted so resolutely on both sides of the Atlantic and on both sides of the Channel, and everywhere in the world, we would have had the worst depression since World War I. We could avoid that in putting on the table on both sides of the Atlantic 27% of our GDP in taxpayer risk. Very remarkably at the same percentage, of course it was not utilized at the level of 27%, it was not a loss, it was not spending, but it was a risk and we had to take those decisions. We won’t do that twice so there is an obligation that what will come out of the Basel III exercise and all the rest of the G20 endeavors, we have to be sure that the global system will be much more resilient. It is a must.

BARTIROMO: Is the banking sector well capitalized today?

TRICHET: Well you know what the stress tests have shown on both sides of the Atlantic. I would say in the medium term perspective it has to be reinforced. And one of the decisions which would be very important is how to organize the transition from the present situation to a situation where we would be fully confident that the system is much more resilient but of course taking into account the necessary transition.

BARTIROMO: So of course that means higher capital levels and a nest egg, a reserve?

TRICHET: That means a banking system that would be more solid, more resilient, and in a number of cases, I don’t want to pronounce on any individual cases of course but for the system as a whole, of course. More resilience, more capital.

BARTIROMO: Most people and I know that you would agree would say that if we keep the fiscal imbalances where they are, we perhaps do face another crisis down the road. You have been very articulate about this. What are the implications if we do not do this? Practically speaking people are out there saying OK, we have a debt. OK, we have an enormous deficit. What does this mean to me? What are the implications on a practical level if we do not get that debt down?

TRICHET: Again the main problem it seems to me is the issue of confidence – confidence of the household, confidence of the entrepreneurs, the household for consumption or for investment, the entrepreneurs for investment and paving the way for the future, and the confidence of the savers and the investors. Again I don’t pronounce for all of the advanced economies. I’m responsible for the European situation and I would say it’s absolutely for the governing council of the ECB that you have again to be credible in doing the job of course in a medium term perspective because nobody expects that you can fix that up in six months to a year. But you must have a credible path towards sustainability. That’s my understanding. Otherwise you are losing confidence and you pay a price and again as I said already at least in our case, in our own analysis if you do not do that with this sustainability in the long term, you would not have confidence today and you are losing in terms of growth and job creation today. That’s again the way we look at our own economy, at how it functions.

BARTIROMO: Because without that confidence you have a market disruption basically. Jobs, unemployment - obviously the main issue that everyone talks about. What policies do you think would be best to encourage businesses to create new jobs?

TRICHET: I create an environment, which is favorable to jobs creation, to growth. I mentioned the confidence channel which seems to me absolutely essential and of course confidence channel doesn’t rely upon exclusively the fact that you are credible in your fiscal policy, medium and long term. It relies also on all other improvement and I have to say again in the case of Europe we know that we have a lot of areas where clearly we can improve the situation. I will give you one example, which I trust is important. In the European countries that could do a good job in the past in terms of labor market reform, namely Germany in particular we could see over the last three years, so in the crisis, not an augmentation of unemployment, but a diminishing of unemployment. That is due in part to the structural reforms – more flexibility in the markets that was introduced a few years ago. It’s due also to the capacity of the social partners to negotiate and to accept in difficult circumstances to diminish the number of hours worked, and then to protect the competitiveness of the enterprises and to accept some diminishing levels for a while, waiting, preserving if I may, the human capital, and waiting for the start of the global economy and of the European economy. So we can see very clearly in our own lab if I may in the Euro area that these kinds of structural reforms are paying off.

BARTIROMO: Can you walk us through the Euro zone? I know Germany has really been a bright spot but where are the other signs of vibrancy or really what has driven Germany to show such strength? A lot of people were surprised and where are still the weak spots remaining that you would like to see improvement. Walk us through the Eurozone.

TRICHET: Again, I am responsible, as President of the governing council, for issuing a currency for 330 million people and I would say that Ben and the open market committee are responsible for the same number of fellow citizens. You probably would not ask that question to Ben – whether he sees Texas or California or Alaska or Massachusetts with problems. Let me only tell you that I check recently the difference that I see in growth and in unemployment in the countries of Europe and in the states of the United States of America and I see the same order of magnitude of difference between, I don’t know, Arizona and Ohio and so forth. We have all to care for immense continental economy at the dimension of 300 million people or more. I would say what counts for us is the overall superior interest of this entire continent. Let me only mention that the 1% I mentioned for growth quarter to quarter is 1% for the Euro area as a whole not for one particular country. I see the phenomenon that we have observed in the second quarter, the important phenomenon for the Euro area as a whole. On top of that of course we are all, as is the case in the US, closely intertwined and Germany is the major market for practically all of the members of the Euro area so when Germany does well, it’s of course good. Germany goes well now but in the past ten years it was not very bright because Germany was working on its own competitiveness and so forth. Exactly like in the US, you have a very vast economy with the various states or countries you know having their own fluctuations with the average and we are not different from that standpoint.

BARTIROMO: What do you think it is that drove domestic demand and what do you think it will be to drive exports in the future?

TRICHET: You know that we are approximately balanced as we discuss current account in the Euro area as a whole. We are not imbalanced, we have no big deficit, we are more or less balanced. So from time to time we are slightly negative, from time to time slightly positive. What counts of course is that we continue to work on our own competitiveness and that we take advantage of the globalization phenomenon. For the domestic demand what is absolutely essential again is confidence. I have a key word – it is confidence.

BARTIROMO: My final question here – people are still wondering what the status of Greece and the debt crisis is. What are the chances that Greece gets kicked out of the euro?

TRICHET: No. No probability. It was said this in this conference I have to say this morning very well.

BARTIROMO: And you also said little probability, correct me if I’m wrong, of a double dip recession?

TRICHET: Yeah, I said the most recent observation, particularly the second quarter and the revision of our own growth projections made me say that the probability of a double dip had diminished over the most recent period taking into account the facts and figures that we have observed. I am speaking for Europe.

BARTIROMO: Yes, of course. Nouriel Roubini made a point yesterday saying we could have a vicious circle. If confidence is not there, as you put it, the markets will disrupt, and that can cause further economic weakness. How much of a worry is that for you?

TRICHET: That is precisely the reason why the governing council of the ECB considers itself as an anchor of confidence. I am telling you with exactly the same analysis things that I could have told you four months ago, eight months ago, a year ago, and so forth. We are on our line, we have a sense of direction and we consider that we have to anchor confidence. And that of course is essential. All this agitation that we see and the change of mood including in the US, in the US you have periods where the mood is very high, periods where it is very low, it’s never true. It’s never as good as some are thinking and never as bad as others are thinking and I trust really that today there is a mood which does not reflect the reality of the US. I remain cautious, I trust fully the Fed on its own analysis, as you know.

BARTIROMO: Final question, Mr. Trichet, for the average person out there thinking ‘I’m worried about my job, I’m worried about the economy’, what should they be doing? Are there things that people should be thinking about in terms of their own financial responsibility or an individual corporation today? What should they take away from this interview?

TRICHET: They have to know that speaking on behalf of the community of central bankers that we are totally dedicated to our fellow citizens. We have it seems to me all over the world, I’m not speaking particularly for the advanced economy but also for the emerging world, we are very close. We met every two months and I see a dedication in circumstances that are obviously difficult, a dedication to do the best for our fellow citizens. We are responsible in front of our fellow citizens. As independent institutions our responsibility comes to public opinion, to the fellow citizens. I would say trust us when we tell you that we are trying to be the best possible anchor of confidence, we will deliver price stability and again we depend precisely on the confidence of the household as a last resort. So that’s why this idea of confidence is so important.

BARTIROMO: How important are the emerging markets and the growth we are seeing outside of the US and Europe, to that global confidence story?

TRICHET: It’s extremely important. We are relying very much at the global level on the capacity of these emerging countries to continue to develop as they are doing, they did during the last period of time. They helped us considerably to surmount part of the difficulty of the recent period and again, in intimate cooperation between the full body of the systemic economies of the world whether advanced or emerging is absolutely.

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