At the press conference after a meeting of the governors of the ECB, President Trichet announced a decision to cut interest rates by 75 basis points (the biggest cut the ECB had ever made) after two 50-point reductions in the previous two months. This was the direct response to what the ECB had identified as a significant reduction in inflation, attributed to the ‘intensifying and broadening’ financial crisis. Pointing to ‘global economic weakness’, Trichet told journalists:
The economic outlook remains surrounded by an exceptionally high degree of uncertainty. Risks to economic growth lie on the downside. They relate mainly to the potential for a more significant impact on the real economy of the turmoil in financial markets, as well as concerns about protectionist pressures and possible disorderly developments owing to global imbalances.
Like the two commissioners, Trichet highlighted the need for disciplined and uniform policymaking across the European Union. The purpose of this was, Trichet said, to preserve fragile public confidence in the economy. Throughout his comments, Trichet too sought to outsource any blame for the crisis while adopting responsibility for addressing the symptoms of the problem and framing the European response as a policy success.
In January 2009, Trichet went a lot further when he addressed a round table at the International Colloquium. In a reflective speech, he focused on what he portrayed as the underlying causes and key solutions to the crisis. He pointed to the responsibility of international financiers:
The current crisis stands out because it is affecting the heart of the global financial system. Its root cause was a widespread undervaluation of risk in the global financial system, especially in the most advanced economies. This included an underestimation of the quantity of risk financial institutions took upon themselves and an underpricing of the unit of risk. Risk was underpriced because, among other things, financial market participants largely extrapolated ongoing trends and the very low levels of volatility in financial markets and in the real economies going forward.
The European Union had, in contrast (according to Trichet), ‘reacted promptly’ and in a coordinated manner to prevent ‘contagion’. The ECB President further hammered financial firms and argued that short-term thinking and excessive risk taking were directly to blame for the crisis:
Among financial market participants (traders, managers, risk committees and boards of directors alike) for a long time there has been an excessive focus on short-term profits to the detriment of longer-term business performance. This has resulted in excessive risk-taking and, particularly, an underestimation of low probability risks stemming from excessive leverage and concentration.
He also outlined his views about the appropriate response and called for increased transparency and regulation in the banking sector. Like his colleagues at the commission, Trichet praised the European institutions for their quick action:
The swiftness and the magnitude of the decisions taken by central banks as regards the supply of liquidity and the decisive actions taken by governments and parliaments as regards recapitalisation in the financial sector and the provision of guarantees have proved effective in avoiding a meltdown of global finance.
He concluded by arguing that the necessary response to the present situation was to engage in a ‘paradigm change’ in the global economy, away from short-term thinking to an approach based on ‘medium and long-term sustainability’ (but was otherwise low on the specifics of such an alternative ‘paradigm’). Again, the dominant framing sought was one of exogenous responsibility but a ‘domestic’ opportunity and responsibility to enact a new regulatory system and a success story so far for the European response.
As the pressures of a collapsing European economy mounted, Trichet became even less circumspect when he addressed the Chatham House Global Financial Forum on 27 April 2009. He now blamed the crisis squarely on the finance and banking sector’s ‘unfettered speculation and financial gambling’ instead of the management of ‘genuine’ economic risk. Though ‘financial liberalisation and financial innovation had made a significant contribution to the economy’, there had been a simultaneous weakening of the screening procedures for credit, which had resulted in a decline in underwriting standards and lending responsibility.
Trichet told his audience that the ECB’s main response to the crisis was to lower interest rates, followed by a guarantee for European banks designed to back up liquidity. There was an imperative to manage the crisis and improve productivity by increasing and maintaining public confidence in the euro and the European economy. Trichet said that ensuring the continued viability of Europe’s banks was his primary concern and a foundation for potential recovery. In all, this third speech was less of an exercise in self-praise than his previous ‘paradigm change’ speech and more of an apportionment of (exogenous) blame and plans for mitigation.
The New York Times lauded the ‘historic pace’ of the reduction in interest rates across the globe, but especially in Europe, in an article on 4 December 2008 (Dougherty 2008). The article also highlighted divisions between Trichet, the European Commission and European governments over the pace of change. It suggested that despite the unprecedented reduction in rates, ‘The European Central Bank’s reluctance to outline a more forceful strategy for the future exposes it to the charge that it is underestimating the severity of the downturn, and that it is passing on opportunities to get ahead of it, analysts said’ (Dougherty 2008).
At the press conference for the reduction in ECB interest rates itself, Trichet faced questions about whether such a significant reduction might have a detrimental impact on market confidence (which he claimed was his primary concern), and whether his focus as the President of the ECB on rates alone was too narrow to appropriately address the crisis.
The primary framing contest over the ECB’s interest rate cut (the only one of Trichet’s three key statements analysed here to attract significant media attention in the sources used) was in regard to the reduction in rates and whether this represented an appropriate response. Furthermore, questions seemed to exist about whether the rate cut was substantial enough or even too substantial. More broadly, Trichet appeared to work hard to characterise the crisis as the result of excessive risk taking in the financial sector.