We are sometimes accused that our research appears to be anti - Euro. In reply, we need to point out, it is not the Euro per se, it is all central banks and specifically the legitimacy of European Central Bank.
As president of the ECB Governing Council, Jean Claude Trichet is the most powerful man in Europe, yet unelected, and unaccountable.
The background is not new. Since the founding of the European Monetary Union, economists have noted the “democratic deficit”. Under the treaty of Rome, all EU institutions must be democratically accountable. The ECB is not and following the Irish “No” vote the Lisbon treaty appears dead in the water (again), and any hope for institutionalised legitimacy for the ECB has faded.According to Dutch economist, and former member of the Bank of England monetary policy committee, Willem Buiter, writing in The Financial Times: “The ECB Governing Council has never had a formal vote” on interest rate policy. Apparently, Trichet and his banker chums get together, have a chat and “reach a consensus”.
The only way a change can be made to the ECB is through a unanimous vote of the European Parliament. However, we believe that eventually politicians will not be able to stop themselves in misguided attempts to create accountability. This political backlash will fundamentally alter the structure of the ECB and ultimately consign the Euro to history.
President Trichet: The Real Power in Europe. The Wall Street Journal likened Jean Claude Trichet to the “Merovingian” from The Matrix movies. In the Hollywood blockbusters, the world we live in is an illusion created by a computer.
The Merovingian is the rogue program that manipulates The Matrix - the unofficial power broker working behind the scenes. This perception cause its nemesis. Price stability is a lofty and worthy goal, but juggling the interests of 15 separate countries is a task made that little bit easier by having complete independence.
As this crisis deepens, the ECB will need to take some very tough decisions - many of them against national interests of at least one or more of the larger economies. This brings to bear a question; Is the Euro as successful as conventional wisdom dictates?
Launched as a virtual currency in 1999 with an exchange rate of 1.2 to the US dollar, the Euro entered a steep decline, finally bottoming at a rate of eighty-five cents to the dollar in 2002 - when coins and notes were introduced. During the 6 years since the introduction of notes the Euro has appreciated in value by 90%, topping out at 1.62 before dropping another 10% over the last few weeks.
Not exactly a stable currency. Perhaps history will record Trichet as more akin to Robert Mugabe, than to Napoleon.
