MONTREAL — The worst economic crisis since World War II has demonstrated the resilience of the euro, the former head of the European Central Bank said Wednesday.
“It was so bold the setting up of the euro that nobody would trust that it could be solid,” Jean-Claude Trichet told reporters after speaking to the Conference of Montreal.
“But it proved it could be solid.”
“What was less solid was the economic union,” he added.
The former French politician and central banker said the value of the common currency is now higher than when it was introduced 14 years ago, despite a crisis that’s thrown the Continent into recession, confounding those who predicted the currency’s demise when its value sank.
The euro is the official currency of 17 of the 27 member states of the European Union plus five other European countries. Some 332 million Europeans use the currency daily.
Trichet said he never doubted that the world’s second-largest reserve currency was correctly constructed. Before the euro was launched, Trichet said he had to fight against skepticism that it could maintain its value and guarantee price stability.
He told the economics conference that the eurozone is making progress at restoring confidence but remains under a shadow from the crisis.
“We have to continue to work very hard because this is no time for complacency anywhere in the world,” he said.
Speaking on the same topic, Bloomberg CEO Daniel Doctoroff said that Europe still faces serious problems even though the main risk has been eliminated.
“We’re still in a reasonably precarious position but nowhere near what it was one or two or three years ago,” he said.
Doctoroff said the real question facing policy-makers is what it’s going to take to propel Europe into robust growth, especially since European financial institutions have been slow in responding to the crisis.
Trichet said austerity measures while painful are a necessary evil to help the weakest European countries to reduce their deficits.
He called on wealthier countries that have current account surpluses to invest their money at home instead of putting it to work abroad.
Earlier this week, the head of the OECD warned about the toxic mix of high unemployment and income inequality which pushes people to adopt extreme political parties.
Trichet said many Europeans, particularly youth, see the main inequality as being between those with jobs and the high numbers of unemployed.
Doctoroff agreed that income inequality has “gotten completely out of whack.”
That’s pushed voters, including himself, to favour increasing taxes on the wealthiest one per cent.
Creating a permanent upper class by dramatically cutting inheritances tax rate would be bad, he said. But Doctoroff warned that taxes can only go so high before they become a disincentive to economic activity and undermine the entire economy.