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Analysis
Trichet’s European debt to Houdini

Trichet’s European debt to Houdini

Retiring ECB chief: the master escapologist

by David Marsh

Mon 6 Jun 2011

In a ceremony last week accepting a prize for European integration in the German city of Aachen, Jean-Claude Trichet, the president of the European Central Bank, named the European thinkers down the ages who have given him inspiration. Erasmus, William Penn, Immanuel Kant, Victor Hugo, Isaac Newton, Robert Schuman, Max Weber, Jean Monnet, Paul Valéry.

One name was missing. Harry Houdini.

The Hungarian-born American escapologist (real name Erik Weisz), who wowed millions with his miraculous stunts at the beginning of the last century, deserves at least a mention in Trichet’s roll call of honour. For, after a month of tense negotiations with the troika — the ECB, European Commission and IMF — it appears as though Greece will pull off the major feat of drawing down the next tranche of aid under last year’s €110bn rescue program.

There’s an important personal reason why Trichet should spare a thought for Harry. The master illusionist’s family persisted in thinking he would return from the grave on the anniversary of his death. Trichet’s last day in ECB office when his eight-year term expires will be Oct. 31, 2011 — 85 years to the day since Houdini departed this earth. Enough, perhaps,to explain why Trichet may well go down in the record books as one of the greatest escape artists in central banking history.

With his constant support, beyond all reasonable odds, for the Greek government’s herculean attempts to make ends meet, Trichet has certainly pulled out every party trick in a central banker’s repertoire. And now, drawing plentifully on the spirit of Houdini, he’ll probably be able to avoid a major Greek default before he leaves office.

Even though Athens is behind a number of targets for fiscal consolidation and privatization, the troika issued a statement on Friday saying the next €12 billion portion of assistance ‘will become available, most likely in early July.’ The apparent agreement — which must still be ratified by political leaders in Europe and the IMF board — is dependent on another set of austerity measures in Greece, including mass layoffs among government workers. That is the essential pound of flesh demanded in return for a further batch of fresh money later this year to compensate for Greece’s inability to return for support to the private capital markets next year as earlier envisaged.

Now that the technocrats have had their say, the ball is back in the court of the politicians in both creditor and debtor nations, who must decide whether the belt-tightening terms are acceptable for both donors and recipients.

It’s difficult to avoid the impression that the euro saga is gradually building up to a messy denouement. The ruling Greek Socialist Party’s own Maria Damanaki, responsible for fisheries in the European Commission, has put the writing on the wall in true Greek fashion by opining that Greece could return to the drachma unless it reaches a deal with its lenders.

In his speech in front of European dignitaries in Aachen, Trichet not surprisingly declined to ponder the unpleasant day-to-day nitty gritty of staving off Greek default and instead kept his head in the rhetorical clouds of grand strategy. ‘Looking much further ahead, we should wonder what will be the future political institutional framework of Europe… Would it be too bold, in the economic field, with a single market, a single currency and a single central bank, to envisage a ministry of finance of the union?’ Unfortunately, given the realities of resentment and fatigue building up among taxpayers and voters in both creditor and debtor countries, Trichet’s vision of a single finance ministry has as much chance of being enacted as Winston Churchill’s last-minute offer of political union between Britain and France in June 1940 as the French were about to succumb to Nazi invasion.

Trichet may be able to engineer his ‘great escape’ and retire to Europe’s hall of fame, along with the other visionaries and immortals. His designated successor Mario Draghi from the Banca d’Italia may not be so fortunate.

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