Too many European Union leaders did not understand the gravity of the Greek debt situation following years of failure to adhere to rules on borrowing, the outgoing boss of the European Central Bank told CNBC.
“I have to say that since the very beginning, it is something that was potentially very important, and again that one should not underestimate the gravity of a situation. We were not, I have to say, pleasing a lot of interlocutors, including the governments that had a tendency to say — no, it's not that important, it's not a big deal — and so forth,” Jean-Claude Trichet said.
Claiming that the ECB was one of the few pan-European organizations that could take an EU-wide view of the economy Trichet said events of the last few years had shown that when a butterfly flaps its wings, there are consequences.
“A very slight change in the conditions at the origin might trigger big changes after a certain period of time,” he said.
Following the three-pronged agreement by EU leaders last week aimed at drawing a line under the debt crisis, Trichet said the problems Europe faces now could have been averted if governments had listened to the ECB’s numerous warnings on debt.
Having thrown his weight behind the idea of an EU finance ministry, Trichet believes now is the time for action following last week’s agreement.
“I think that we have to do the job immediately and as you know there have been major changes in the Stability and Growth Pact (EU rules on borrowing) itself, in the way we will survey from now on the competitive indicators, the imbalances inside the Euro area," he said.
Trichet said his warnings on debt left him very isolated, with even mainstream economic thinking against his tough stance on government borrowing.
“We were very isolated ... in the realm of the governments and executive branches, but also at the level of again the dominating economic thinking. Even, reflect one second, even on the six months before the crisis erupted, The overwhelming sentiments of governments of the world was that the IMF would not have to embark into any new lending to any country because the private markets would finance all governments without any problem. It was the official thinking,” he said.
Having marshaled the EU through the financial crisis since the summer of 2007, Trichet defended his decision to use non-conventional measures to help shore up confidence following the collapse of Lehman Brothers and during the recent sovereign debt crisis in the euro zone.
In constant contact with other central banks like the Federal Reserve, Trichet said he spent a lot of time simply trying to convince the politicians to act.
“So we permanently told them, look, you have to care for that because it is not our job to ensure financial stability in the sovereign constituency — it’s yours: individually and collectively. And as you know a number of decisions have been taken, including recently, in order to permit them to do the job which would permit us not to continue to help restore a better transmission of monetary policy because it would be done by the appropriate means by the governments,” he said.
Saying he plans to read more and study European history now that his 8-year tenure at the ECB is at an end, Trichet believes his replacement at the ECB will be up to the job.
“I am leaving in full confidence by my successor. Mario (Draghi) has been himself inside the governing council since many, many years. On top of that, he has a global vision which comes from his position as the chair of the Financial Stability Board. He worked with me and with all colleagues and with all those who were dedicated to construct Europe — Horst Koehler, Hans Tietmeyer... So again, he is very well prepared” said Trichet.