Is the eurozone crisis over? A central banker's view
- 25 January 2013
- From the section Business
Peter Praet, of the European Central Bank, is an engaging central banker (yes, really) with a lively sense of humour (again, yes).
Of course, he has more reason to be at ease now than if I had met him in, say, June last year (which I didn't). So does Mr Praet, who sits on the ECB's executive board and was at the Belgian central bank in the previous decade, think the eurozone crisis is over?
He is reluctant to say anything as strong as that, and who can blame him? But he does see an improvement, especially compared with the first half of last year when there were "a lot of catastrophic scenarios running around and the risks were really there".
Those scenarios were not just about the eurozone. There was a fear of a hard landing in China, the fiscal cliff in the United States and "not least" he acknowledges "the fear of a eurozone breakup".
The fears have eased and he notes that many commentators have given central banks, especially in the eurozone a lot of credit for that. When I suggest he is happy to accept that credit, he laughs and says "to some extent". But he also argues that it's important not to think that central banks are the solution to many of the structural problems of our societies.
Those issues require reforms from governments and Mr Praet acknowledges that it's a long haul. "The way is still long," he says and "the message we as central bankers give is you have to persevere".
'Not my business'
Still he thinks the effort is beginning to pay off. In several countries, including Ireland, Spain and even Greece, he says you see a lot of concrete results.
But Mr Praet also agrees that reforms are difficult and when the economic and financial situation improves there is a temptation for governments to delay. "We call it moral hazard."
That, incidentally, was not the only time the former professor showed himself. At one point - not included in the edited interview - he mentioned "internalising positive externalities".
Then there is austerity and recurrent debate about whether it's counterproductive. Mr Praet says public debt usually increases because politicians try to push problems into the future onto the next generation - who cannot vote.
He argues that would should ideally happen is reform first - adapting to changing technology and the global environment with things like reforming the labour market. If you have a tough adjustment programme then it might make sense to ease up on the government finances until the economy responds to the reforms.
The next big political event for the eurozone is the Italian election in late February. Mr Praet doesn't say how he would vote if he were Italian, but he clearly has a lot of time for the technocrat in charge now, Mario Monti.
"Some fundamental issues in the labour market, corporate governance are being addressed in a very impressive way," he says. But these reforms do raise some questions about who bears the burden. Addressing these is the skill of politics and that, he says with a laugh and, I suspect some relief, "is not my business".
The eurozone is dealing with more than these long standing structural issues. There is also the financial debris left by the bursting of a bubble. It was a bubble that enabled governments to borrow cheaply - even Greece was paying interest rates almost as low as Germany.
It also showed up in property markets, especially in Spain and Ireland. So it raises a question for the ECB. Should it have done more to prevent the boom that led to the bust?
Mr Praet says the ECB did raise interest rates when inflation was very low and was criticised for it. The money supply and credit were rising fast at the time. But he accepts that the ECB should have done more. Still, he says new policy tools are needed to regulate the banks.
The ECB will have a key role in that area. The eurozone countries are moving towards a banking union, which will give the ECB a central role in regulating the sector.
As far as the immediate crisis is concerned, I get the feeling that Mr Praet thinks the ECB has done its bit for now.
Certainly in the financial markets, the view is that the ECB's readiness in some circumstances to intervene in the market for government debt has bought some time, and it's up to those governments to put the time that has been bought for them to good use.
Mr Praet didn't say that in so many words. But I don't think he'd disagree.