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Greece's PM Calls For Referendum on Aid Package; Meet Europe's Young & Jobless; Trichet: the Euro Years

Aired October 31, 2011 - 14:00   ET


MAX FOSTER, CNN ANCHOR, QUEST MEANS BUSINESS: A wake up call for the G20. The head of the OECD tells me Europe's action plan is mediocre, at best.

The Eurozone debt crisis claims another casualty. This time it is a big American broker.

And we're on the road in Europe as we meet the young and jobless.

I'm Max Foster in for Richard Quest. This is QUEST MEANS BUSINESS.

The grand plan needs an even grander solution. At least that is the assessment of Angel Gurria. He is the secretary-general of the OECD, telling me tonight that G20 leaders must act fast and boldly to get the global economy growing again.

Also this hour, "Trichet: The Euro Years", a QUEST MEANS BUSINESS special for you on Jean-Claude Trichet's tenure as the head of the European Central Bank.


RICHARD QUEST, CNN ANCHOR: In half an hour, when Jean-Claude Trichet, the retiring president of the ECB tells me we must never let the financial system become as fragile again.

JEAN-CLAUDE TRICHET, OUTGOING PRESIDENT, EUROPEAN CENTRAL BANK: We must have the capacity, from the center, to impose decisions. Otherwise, it puts into question the stability of the whole.


FOSTER: Firstly this hour, it is a dire warning from the OECD to G20 leaders: Rebuild confidence and stability, or face a recession that could be as deep as the one that hit back in 2008. Now in a report the organization for economic cooperation and development says the measure announced last week to address the European debt crisis, must be clarified then fully and decisively implemented.

It says doing so will stop contagion and break the link between sovereign debt and the frailty in the banking sector. Even if that goes to plan, though, the OECD predicts a weak growth in the United States and patches economic contraction in Europe over the next couple of years. It also warns unemployment is likely to remain high in many advanced countries.

Now the report says it European measures fail to restore confidence, or if disorderly debt default occurs, the situation could be much, much worse. It says some advanced economies could see GDP fall by as much as 5 percent by the first half of 2013. The OECD says that bleak scenario could also play out if U.S. fiscal policy turns out to be excessively tight. I spoke to the organization's Director General Angel Gurria, earlier. He told me this report is a wake up call for the G20.

ANGEL GURRIA, SECRETARY GENERAL, OECD: What we came out with today is a mirror. And we are putting it up to the G20 leaders. And we are saying to them, this is the inertial scenario, in absence of better policies, more consistent, more convergent policies. More mutually reinforcing policies and it doesn't look good.

Because high unemployment persists because high deficits persist, because high debt, because low-growth persists; and therefore we should do something about it. We should get together. And there is an action plan that is purposed, in the G20, that is going to be discussed by the leaders.

And also there are very short-term measures that were proposed last week, by the European, having to do with the debt, having to do with the banks, having to do with Greece. All those things have to be executed. They have to be implemented. They have to be done. They have to be put together. But also in the case of the action plan it has to be adopted by the leaders. It was already approved by the finance ministers, so-and after adoption it has to be actually executed.

So, these are the things that we're saying, are going to improve the scenario, rather than the inertial scenario that we see today, which is the one that we put out today. And which is obviously very undesirable, very mediocre.

FOSTER: The central banks are in a bit of a panic about creating inflationary pressures, aren't they, right now? You are asking them to go against their own missions?

GURRIA: Oh, absolutely, not at this moment, because I would think it is about being on the message. And the message is we are worried about growth. Today, inflation is not something that makes us loose a lot of sleep.

FOSTER: When you are looking at the figures, actually, you are talking about growth in the U.S. economy, the big world driver, actually being higher next year than this year. Even the euro area economy is going to be growing next year. And it is at 1.6 percent this year. So there are not a lot of negative headlines coming out of this, but there is still growth, it is not all doom and gloom, is it?

GURRIA: Oh, frankly, we're not talking about negative growth, contraction or recession. We are talking about a very modest growth. Now, we put in there that it is less than 0.5 of 1 percent for the Eurozone. Do you think that this is growth enough that is going to be making inroads into the unemployment? We have 10 percent unemployment in Europe; 9 percent in the United States, and when you are talking the young, you have 20 percent unemployment, 30 percent unemployment, 40 percent unemployment, depending on the country.

And you have the streets of the main cities in the United States, and in the Middle East, and in Chile, and Israel, and in Spain, everywhere in the world with these disaffected frustrated youth who are looking for opportunities and can't find the jobs. And therefore it is not that 0.3 or 0.5 growth per year is going to solve their problems; and frankly, 1.5 or 1.7 percent in the United States is not the desirable cruising speed that we want. We do need to do better.


FOSTER: Well, Gurria isn't alone in ringing the alarm bells over unemployment. The International Labor Organization says that the world is on the verge of a new and deeper jobs recession that can only be headed off with prompt action. The ILO says that the job situation could delay the recovery and ignite widespread social unrest. It is certainly an issue G20 leaders will have to tackle when they meet in Cannes this week.

It is young people who are taking the brunt of the unemployment crisis it seems. Let's take a look at the numbers that we know about from Europe. These are the latest numbers we have about the situation right now, from Eurostat.

Let's take you to Italy, for example. Youth unemployment, currently 8.3 percent-sorry, youth unemployment 29.3 percent, and the general unemployment rate 8.3 percent. So you need to look down the figures. In France, unemployment 9.9, but the youth rate, 24 percent. Something like a quarter of the youth unemployed. Down in Portugal, unemployment, 12.5 percent, the youth, though, 27.1 percent. Take a look at Spain, the big unemployment story, general unemployment down 22.6 percent, bad enough, of course, but youth unemployment 48 percent. Nearly half of young people, who can work, out of work.

So, out of work, out of pocket, and just out of college, the young and unemployed of Europe say nobody is listening to them.

So, CNN's Diana Magnay is taking to the road this week, traveling through the heart of the Eurozone. She'll be talking to young people at town hall style meetings, organized through social media. She joins me now from Berlin to tell us about her road trip.

How is it going so far, Diana?

DIANA MAGNAY, CNN CORRESPONDENT: Well, we are, we are starting in Berlin. We are going all the way through Europe. We have various pit stops, Munich, Milan, Marseilles and ending up in Barcelona. So, we start in Germany, where youth unemployment is just below 10 percent. Round about one of the lowest countries in the Eurozone for youth unemployment; ending up, of course, in Spain, where you have just cited the numbers. They are shocking, 48 percent of young people unemployed.

And this will be a social media trip. We can't obviously go everywhere on the continent. Which is why we need people to Tweet in to tell us what they think; we want to hear your Tweets. We want you to send in your iReports. You can go to the QUEST MEANS BUSINESS Facebook page.

Tell us what you think about things like, whether you are feeling that you can't access the jobs market. Do you feel betrayed by your politicians for not providing you the opportunities that you have been studying for? Do you feel that the financial system is betraying you? Can you see any other alternative to the current financial system? And what do you think of the way Europe's politicians are handling this crisis? What would you like to see done differently.

So, this is a chance to have your say. Tweet us, join us, online, or join us on the road, in these roundtables, in those various cities. We really want to hear from the young people, who are going to be bearing the burden of Europe's sovereign debt crisis over the next years and decades, Max.

FOSTER: Diana, what is your hypothesis here? What do you-what are you expecting to find? So we can compare it, at the end of the week, to what you do find?

MAGNAY: Well, I think, if you look at the Occupy Movement (AUDIO GAP) a lot of people feel incredibly indignant, outraged at what they see as the mistakes of the financial system, the mistakes of bankers. Now it will be interesting to see whether that line, you know, we are the 9 percent, how many people really feel that way? Do they really want changes to the social welfare system in European countries? Do they feel that those are going to be sort of structurally altered over the next few decades, because there simply won't be the cash around to sustain those systems?

And I imagine that the impression that we'll get, as we continue, as we go on this journey, is that people are fed up and extremely frustrated. I'm sure that it will-I'm sure that will be the picture that we see, Max.

FOSTER: Can't wait to see what you find. Diana, thank you very much.

We'll be with Diana, of course, all week.

Now, another day, another big Euro development; Greece citizens could decide whether or not the country will adopt the aid package agreed with European leaders last week. Just minutes ago, the prime minister, George Papandreou called for a referendum, actually, on the measure. He has also called for a vote of confidence in his governance, in him, in fact. For more on this we go to Elinda Labropoulou, who is on the line from Athens.

This only just happened, Linda, hasn't it? But what are the headlines for you?

ELINDA LABROPOULOU, JOURNALIST: Well, that is right. Yes, this has just happened. The Greek prime minister has announced to his lawmakers in parliament that Greece will hold a referendum on this new European Union aid package that was decided last week at the EU summit. And he has also asked for a vote of confidence, on his government, which will take place before the referendum.

We haven't got any specific dates on when this is likely to take place. I mean, this is really just breaking news in Greece. But some initial indications are placing it for early next year, in January next year. But this needs to be confirmed.

The Greek prime minister's announcement comes after a latest poll, published in the Sunday press, which shows that six in 10 Greeks are not happy with the deal that was cinched last week. It has also been confirmed by the Greek finance minister, who has said that the referendum will ask for a yes or no to the new aid package.

And Venizelos, the finance minister, has also said, on Greek TV, that the reason for this is that the government feels that the country is now living a drama, and that citizens are confused. And that is why the referendum is necessary.

This is a developing story. I assume we'll be having more on that later.

FOSTER: I think we will, because other Europeans are going to be worrying that the referendum won't go through, which will blow out the whole Euro rescue plan that, you know, they developed the other day.

LABROPOULOU: Absolutely. You are absolutely right on this. I mean, we thought we had something that was fairly clear. It seems that as the Greek government felt that it did not have the necessary supports to be able to implement the measures that would be necessary for the package. It has now decided to see if it can get that support. And this is why the prime minister decided that the referendum was necessary.

FOSTER: Elinda, thank you very much for bringing that breaking news for us from Athens. Much more on this as it develops. We'll get more details, of course.

Now it is Wall Street biggest nightmare, and on Halloween it came true. European contagion has finally struck there. And it could mean one of the biggest bankruptcies in the U.S. of all time.


FOSTER: The honeymoon is already over on those European markets just days after last week's relief rally, they finished firmly in the red this session. All four indices lost ground, the DAX, worst of all, down 3.23 percent. Another warning sign, in Italy where borrowing costs are staying high. Yields on 10-year sovereign debt rose more than 1 percent today, pushing through the 6 percent barrier.

Contagion has well and truly made its way its way to Wall Street, as well. A major U.S. broker has filed for bankruptcy protection and it is all down to European sovereign debt.

Felicia is here to explain-Felicia.

FELICIA TAYLOR, CNN BUSINESS CORRESPONDENT: Yes, Max, this is going to leave a lot of investors looking pretty nervously over their shoulders. The dealers that we are talking about worked at MF Global. The company is the first major U.S. casualty from European contagion and obviously it sends out a warning sign. It will mark about the eighth largest bankruptcy ever, in the U.S.

Here is a bit of background about the company. MF Global was run by Jon Corzine. He is a former CEO of Goldman Sachs and also former governor of New Jersey. As of last month, though, the company had assets of about $41 billion. But this morning shares were suspended on the New York Stock Exchange, the Federal Reserve Bank of New York also told it to suspend any further trades, except for its sell positions, and soon after it filed for bankruptcy protection.

Those shares plummeted in recent days; off about 85 percent this year alone. The reason behind the collapse, again, of course, the European sovereign debt problem. MF Global has massive exposure. In its last set of results it revealed more than $6.3 billion in European sovereign debt. And that was at the suggestion of Jon Corzine.

Among the countries involved, Portugal, Italy, Spain, and Ireland. And was we know, holders of European debt are headed for a big write down. Investors on Wall Street who knew about MF Global's holdings were naturally watching close. Many saw the company as a sort of a bellwether for how well an American company could withstand the pressures created by the crisis in Europe.

That question has now been answered. And obviously the answer isn't a pretty one. The new question, though, is how big is the fall out going to be. Comparisons are already being drawn to the Lehman Brothers collapse in 2008. There are big names who are still owed money by MF Global. Two companies alone have a combined $2 billion loss. Deutsche Bank has about a $1 billion in bonds outstanding. JP Morgan Chase has about $1.2 billion in corporate bonds.

A source, though, from JP Morgan, told Reuters that its actual exposure is only a small fraction of that number. That is one reason this may not have the same effect on Wall Street that Lehman did. The other reason is that Lehman was far more intertwined than MF Global is on Wall Street. Lehman, of course, had several times more assets, also when it went bankrupt, than MF Global.

But this is certainly the sharpest sign yet that the threat of contagion from Europe is very real and very powerful. You could see it reflected in the stock price of JP Morgan Chase, which was down about 3 percent. And at last check, Deutsche Bank was off about 8 percent, Max.

FOSTER: Felicia, thank you very much indeed. Let's have a look at the Wall Street numbers, in general, then. The Dow is currently down 1.6 percent. Heavy losses across the board, really. The Nasdaq and the S&P also off more than 1 percent. Very sour end to the month, then. But do remember, October, actually generally a very good month; the best month, in fact, for the Dow and the S&P 500 since 1987. So, not always worth looking at those daily movements.

You are with QUEST MEANS BUSINESS. Just ahead Moscow goes back to the future. Russia capital is restoring the icons of its past to help it define a new identity. As a future city, we've got special access to the Kremlin.


FOSTER: It's back. Russia is dancing with joy with the reopening of the Bolshoi Theater. This symbol of Russian culture has survived fires and wars. The theater troupe began live in 19-oh, rather 1776, under the reign of Catherine The Great.

The czars attended performances there. But Nikolas and Alexandra would be surprised today by the cutting edge acoustics, all part of a nearly $700 million renovation that took six years.

Now the Bolshoi Theater is just one of the famous buildings at the center of a growing trend in Moscow, restoring the capital's past to give it a more formidable future.

Richard took a look at how Moscow's quest for identity is helping it move forward and helping it become a "Future City".


RICHARD QUEST, CNN ANCHOR (voice over): The year is 1812, and Russia is fighting off a French invasion. Whiling away the long evenings with music and dance-except this is 2011 and it is Saturday night in Moscow.

QUEST: This costume ball is just one example of how today in Moscow they are quite comfortable celebrating the past. In fact, they relish what went before.

(voice over): Moscow is in the grip of a Czarist revival that goes way beyond entertainment. After Communism's collapse President Boris Yeltsin began ordering the restoration of key parts of Moscow's heritage.

The ceremonial halls of the great Kremlin Palace, where the czars were crowned and modern-day presidents inaugurated. Tatiana Kavanyeva (ph) is the chief architect of this restoration project.

UNIDENTIFIED FEMALE (onscreen translation): It was where the Supreme Council of the Soviets met.

QUEST (On camera): So all this-I mean, were the chandeliers here?

UNIDENTIFIED FEMALE: (onscreen translation): None of it was here, none of it. It was only on photographs, sketches, and in the archives.

QUEST (voice over): Over four years, Tatiana and her team painstakingly rebuilt the pillars, remolded the gold carvings, and restored the two-headed eagle, Russia's imperial emblem.

(On camera): This wall is one of the biggest changes in the restoration. It was taken down by the Soviets, to make one long room. It was restored after the collapse.

(Voice over): In total, 19 kilograms of gold leaf went into this room.

UNIDENTIFIED FEMALE (onscreen translation): As a restoration architect I have always been convinced that you need to preserve authenticity. All our history, even from the time of the grand princes, is linked to this place.

QUEST: By the turn of the century, the Kremlin halls have been returned to their former czarist glory.

(On camera): After the Kremlin, the most famous building in Moscow, some would say, is this, the Bolshoi Ballet, which is just reopening after six-year renovation.

(Voice over): Tatiana showed me the important part of the external restoration. The grand facade is restored to perfection, she says. But the back, a similar column structure has been removed. And she is not happy.

UNIDENTIFIED FEMALE (onscreen translation): I think it is vandalism. They should have kept this, even if it was inside, even if it wasn't visible.

QUEST: The Bolshoi Theater says the columns were not destroyed and have been preserved in the Bolshoi Museum. Yet, controversy surrounding Moscow's major restoration projects is nothing new.

The Cathedral of Christ the Savior, the seat of the Orthodox Church, and a defining feature under Moscow's skyline. This is the original. It was built in the 1830s.


The Soviets tore it down a century later, replacing it with a public swimming pool. By the 1980s the site already had architects dreaming. It had to be returned.

UNIDENTIFIED MALE: The idea of rebuilding the cathedral, first came up in the Soviet times. Ten years later, in 1994, it became a government project.

QUEST: Alexi Denesoff (ph), worked on the new cathedral for five years, before being replaced by another architect. He believes the building symbolizes Russia's spiritual revival. As an architectural revival, he has his doubts.

UNIDENTIFIED MALE: Take the cathedral's decoration, especially the high reliefs. They were originally marble, and, of course, we wanted to recreate them in the same material. But commercially, it was more profitable to make them out of bronze, so that's what they did.

QUEST: The devil's not only in the detail. The Moscow Architecture Preservation Society warns that complete reconstruction projects like this can actually harm Moscow's heritage.

CLEMENTINE CECIL, CO-FOUNDER, MOSCOW ARCHITECTURE: When we set up maps, we quickly realize that one of the main threats to Moscow's heritage wasn't the bulldozer. It was also this quite insidious practice of sort constructing replicas, sham replicas, bloated versions of the originals.

QUEST: While accurately restoring Moscow's heritage can be a problem.

Back at the ball, it is clear that it is much more than just accuracy at stake.

ALEXANDER GORELIK, DIRECTOR, UNICEF MOSCOW: There is more to it than meets the eye. Because basically it is about filling some gaps in the way Russians see themselves.

QUEST: After a century of revolution, and regime change, this city and its people are dealing with an identity crisis. They need to look back, and be at peace, before they can move forward.



FOSTER: Welcome back. I'm Max Foster. Our QUEST MEANS BUSINESS special, "TRICHET: THE EURO YEARS", is just ahead. But first here are your news headlines.


That's it for this edition of QUEST MEANS BUSINESS.

I'm Max Foster in London.

Now, though, a QUEST MEANS BUSINESS special -- "Trichet: The Euro Years".

RICHARD QUEST, HOST, "QUEST MEANS BUSINESS": Are you ready for retirement?


QUEST: Hello and welcome.

I'm Richard Quest in Frankfurt, outside the European Central Bank on the day that Jean-Claude Trichet retired as president of the ECB.

Over the next half hour, we'll look back at President Trichet's legacy, which can neatly be divided into two periods of time -- before the crisis and what happened after it began.


QUEST (voice-over): Saddam Hussein is captured, Concorde makes its last flight, growth in Europe looks robust. The year is 2003 and Jean- Claude Trichet has taken up his post as head of the European Central Bank.

It was all quiet on the financial front. The new chief, meanwhile, had a mandate to follow, with which he has stuck throughout -- maintaining price stability, keeping inflation at bay.


TRICHET: The governing council decided to leave the key ECB interest rates unchanged.


QUEST: For several years, this policy worked. Then, the unexpected happened -- inflation seemed to be on the rise. Interest rates had to go up in the midst of an emerging crisis on Wall Street, mid-2008, to be exact, Trichet again raises interest rates by .25 percent. Inflation had surged, oil prices hit an all time high.


TRICHET: The U.S. is influencing Europe and the rest of the world, I would say. We have a baseline center view (ph), which is ongoing growth with risks on the down side.


QUEST: What happened after this is history. Lehman Brothers collapsed and three months later, Trichet reversed the rise and more. By 2009, seven rate cuts in eight months had taken interest rates to a record low of 1 percent.

By then, the U.S. crisis had crossed the Atlantic and concerns had spread to government debt. Suddenly, Greece was the country in the spotlight, asking for $140 billion from the Eurozone.


TRICHET: What is important, in our view, is the recognition that Greece is in an absolutely exceptional situation and that, for that reason, it requires exceptional and unique solutions.


QUEST: There was nothing unique about the problems in Greece. Ireland and Portugal were next in the bailout line.


TRICHET: Improving confidence is really of the essence.


QUEST: Growth had returned and now the worry was rising prices. Trichet's primary mandate, a fixation with 2 percent inflation, was once again at stake. So, for the first time in three years, and to the surprise of many, the ECB raised rates.


TRICHET: The governing council decided to increase the key ECB interest rates by 25 basis points.


QUEST: It was a decision economists believe exacerbated the crisis, a charge that sparked this furious outburst.


TRICHET: We have delivered price stability over the first 12 years and 13 years of the euro, impeccably, impeccably.


QUEST: Eight years on, as Trichet's leaving the job, in Frankfurt, leaders lined up to say good-bye.

JOSE MANUEL BARROSO, PRESIDENT, EUROPEAN COMMISSION: For everything you have done and also for everything you will do for this great cause of the European integration, I say to you, un gran merci (ph).

QUEST: As he passes the symbolic ECB bell to his successor, Mario Draghi, Trichet has a final thought on his years in office.


TRICHET: Whatever the future holds, you can be sure that the ECB governing council will continue to be faithful to its primary mandate and that the ECB, together with the euro system, all the monetary team of Europe, will continue to be an anchor of stability and confidence.



QUEST (on camera): Jean-Claude Trichet, as you come to the end of a distinguished tenure as president of the ECB, there must be many thoughts and many moments that you recall.

What first comes to mind as you look at the -- back over the last eight years?

TRICHET: Well, for the first days, of course, when you realize that you are called to lead a team which is responsible for issuing currency for several hundred million people. And at the moment, I'm speaking of 332 million people, 17 countries.

So it's a -- an immense responsibility, an immense weight on your shoulders, even when you are in normal times, of course.

QUEST: Quite soon after you start, and there is a tightening cycle that begins. You obviously, at that point, felt it was time to -- to put the brakes on.

TRICHET: We were heavily criticized -- why the hell are you increasing rates?

So we were criticized by 10 governments out of 12 in Europe at the time, in the Euro Area. We were criticized by the IMF, by the OECD and the -- on the ground, that it was too early to increase rates. Experience has demonstrated, of course, that it was very much the appropriate time.

QUEST: We end up in August 2007, a credit squeeze begins.

At what point did you realize this was no ordinary crisis?

TRICHET: I think that we were prepared ourselves to something which could be very, very challenge and that we had to prepare for a correction. From the very first day, we judged that it was something which had never happened, even when we had not yet Lehman Brothers, we had not yet, you know, all the tsunami which was the triggered by those successive events, even on the -- observing our money market, we could see that it was something which was profoundly abnormal.

QUEST: During the crisis, was there ever a moment where you felt it was getting out of control and would not be able to be controlled?

TRICHET: I think that it was permanently, particularly at that moments where were the most acute, of course, a permanent challenge to be sure -- as sure as possible, that we were ahead of the curve and not behind the curve.

QUEST (voice-over): While President Trichet made the decisions, Francesco Papadia, the director general for market operations at the ECB, was responsible for executing them.

(on camera): Yourself and other central banks, you were doing things that you'd only read about and studied in textbooks, effectively.

FRANCESCO PAPADIA, ECB DIRECTOR GENERAL, MARKET OPERATIONS: We -- and not only us. I mean, I would say that the Fed and the Bank of England, the Bank of Japan, the Swiss National Bank, had been doing things that were in no textbook. I think that textbooks are being written now to incorporate what we have -- what we have done. And so, in a way, we had to -- to invent new things.

TRICHET: We were in clearly uncharted territory. And we had to see exactly what was necessary to, again, for us, help restore a better transmission of our monetary policy. It was necessary to stand ready for unexpected events.

QUEST (on camera): Let's take the euro as a -- as an entity, set up in the '90s. You were there at its creation.

Did you realize then that this concept, this thing, was being set up badly and it was a ticking time bomb?

TRICHET: Certainly not, because we were, ourselves, extremely determined to have a solid framework as regards fiscal policy. And the working assumption was that we have a stability and growth pact. I have to say, I introduced myself as a representative of my own government, the idea that the 3 percent limit, not to be over passed, was entirely part of EMU - - Economic and Monetary Union. I said myself -- I'm on record to have said 100 times, we have no political federation. We have no federal budget. Therefore, we need a very strong fiscal framework, surveillance framework.

QUEST: But at what point in the last 10 years did you realize this was going badly wrong?

TRICHET: I would say it was at that moment where in an environment of overwhelmingly dominant, benign neglect on fiscal policies, we...

QUEST: Overspending by governments, basically?

TRICHET: No, benign neglect that by all. I mean the markets were making no difference between good behavior and bad behavior. Greece and Germany were borrowing at the same interest rates. You had exactly the same benign neglect coming from the economists, you know, the economists, the mainstream of the economists in year '03, '04, were considering that the Stability and Growth Pact was too much -- too, too tight a jacket, too tight a jacket.

And we had the major countries in Europe calling for not applying the Stability and Growth Pact to them.

QUEST: And you were worried?

TRICHET: And we were extremely worried. We went extremely vocal to say it is not acceptable, we are an economic and monetary union, not only a monetary union, an economic union. Under surveillance of fiscal policy.

QUEST: Coming up after the break, I cross the square from the ECB to the headquarters of Deutsche Bank to talk to their chief economist and hear about Trichet's tenure.


QUEST: Welcome back to our special coverage of Jean-Claude Trichet and his retirement as president of the European Central Bank.

As I leave the ECB, the protesters camped outside leave one in no doubt as to their view of the bank and its president. "You occupy the money, we occupy the world," they say. They've been camped out here for several days.

For a more dispassionate view of Mr. Trichet and the bank, I'm going to talk to the chief economist of Deutsche Bank.

As a president of the ECB, how do you think he's done?

THOMAS MAYER, CHIEF ECONOMIST, DEUTSCHE BANK: Well, if you rate him on his performance criteria, then you can say that he has done an impeccable job because inflation was exactly on target through his eight year tenure.

QUEST: Was -- was it enough to have an impeccable performance on inflation?

MAYER: No, certainly not. His tenure was a very challenging time. Perhaps the first few years, I think, one would have considered it to be enough to have just a very well set inflation performance.

Toward the end, for the last two or three years, I think other challenges came up.

QUEST: Does he bear some criticism for failing to foresee the great financial recession of 2008-2009?

MAYER: To be fair, he continuously admonished governments to take their fiscal responsibility seriously. In every press conference toward the end, there was a statement that fiscal discipline is of utmost importance. And in this regard, I think he was right.

He was also, I think, right in ending the period of very low interest rates that we had following the burst of the Internet bubble earlier than others. That, you could say, put him in a better position when we judge the central bank's contribution to the inflation of the housing and credit bubbles.

So the ECB was, in this regard, a little bit more alert.

QUEST: What about the question of whether he raised too far too fast?

MAYER: Well, you could question the 2008 rate hike. At the time, I thought it was a mistake. They did it because they had a different assessment of the economic outlook, a different assessment of the depths of the financial crisis. They did it and then they had to correct it in September.

But to be fair, you know, we are not perfect forecasters. So everyone makes mistakes. But that certainly was a mistake.

QUEST: Bearing in mind what Trichet has had to deal with during his time, it's quite remarkable that, really, we are just arguing about relatively small matters, aren't we?

MAYER: I mean overall, you can say that his tenure was a very successful one. He has proved himself as a great European, very committed to the European project. I think this will be the key features of his tenure that will be remembered in history.

And then there were some errors.

But then who is not without any error?

QUEST: Coming up after the break, the president shows me the nerve center at the ECB. We're in the Market Room.


QUEST: "Farewell, Mr. President" -- the ECB staff magazine this month pays tribute to Mr. Trichet.

But no sooner has one man gone than it's hello to the new president, discretely calming the storms. It describes Mario Draghi, who takes over at the ECB.

What are his policies?

Who is this man?


QUEST (voice-over): From Wall Street to Rome and now to the top of European economics. Mario Draghi's career has lived up to his predictable nickname, Super Mario. Starting on Tuesday, he faces his biggest challenge to date -- running Europe's central bank.

Born and educated in Rome, Mario Draghi has held a string of top jobs, including at Goldman Sachs and the World Bank. In 2005, he became governor of the Bank of Italy. Managing inflation has been his goal.

Then, by 2008, the crisis hit, the rules changed. Now, Draghi was dealing with the banks. That became his top priority.

MARIO DRAGHI, INCOMING ECB PRESIDENT: We have two leading projects this year. One is the capital, on one hand, and the other one is we have to roll back the moral hazard that still prevails in the financial services industry.

QUEST: Renowned as a savvy and likable politician, Draghi's knack for detail has won him friends and admirers. He believes his policies as the central banker for Italy helped prevent the country's banks from going under.

DRAGHI: No Italian bank had any problem during the crisis.

QUEST: When the ECB job came up, Draghi was by far the number one choice. And like his predecessor, we can expect a firm commitment to price stability. In other words, keeping inflation under control.

DRAGHI: No sovereign debt crisis nor any persistent bigger (ph) bank could ever make the ECB to detour from the price stability in -- as an objective.

QUEST: Draghi will have to face the critics, who will claim he may be too favorable to his home country, which is, at the moment, in times of trouble. But he brings his own ideas to the table. Draghi wants fewer partial or temporary solutions, more clearly defined objectives. What's clearest of all is that after Trichet, he has a tough act to follow.

Jean-Claude Trichet is leaving at a time of heightened activity for the ECB. The Market Room is at the heart of the bank.

Here, they monitor what's happening in the financial world. The room itself may be far less imposing than the work being done here, but it is the nerve center. And it seems a good time to bring up the challenges facing the new president, Mario Draghi.

TRICHET: We are passing the baton, exactly like Wim Duisenberg. He passed the baton to me, Wim Duisenberg. And I was a member of the governing council. I had participated in all the decisions. I had, you know, plunged, intellectually, and very profoundly, in all the diagnosis and analysis. So it's the same with Mario.

But what I have to say is that I, quite often, have been here to encourage the people that are here, to tell them that we were very much relying upon their own observations and their own action. And I'm sure that Mario will do the same.

QUEST: So we now have a situation where a deal has been done and you look to the future. And you are very firm in your view, aren't you, that a further integration, whether it be a finance ministry, a central ministry, whatever it is, what's your vision for what a further integration looks like?

TRICHET: We have to do immediately the implementation of the new governance, because we have already improved now the Stability and Growth Pact. We have improved the surveillance of competitive indicators of the imbalances inside the Euro Area. This has de -- been decided by the parliament and the governments. It is the new legislation. It has to be applied very rigorous -- rigorously.

QUEST: But do you want a ministry?

Do you want a central minister?

TRICHET: Now, let me say, for tomorrow and the day after tomorrow...


TRICHET: -- you have to, in my opinion, have a vision of what should be done. That is my own personal sentiment. It's not the sentiment, necessarily, of the institution.

But my own sentiment is that we have to go further and envisage, if necessary, a change of the treaty to permit the governance of Europe, to avoid, to put, because a particular country would not behave properly, refuse to behave properly, not apply recommendations, refuse one time, two times, the recommendation. Then we must have the capacity, from the center, to impose decisions. Otherwise, it puts into question the stability of the whole.

There is no model for us. The United States is not a model because the historical wealth of any -- any, each and every European country is not to be compared with what makes up the United States. But we have to go further. And I'm sure that the Europeans will invent a new way of marrying, if I may, the respect for the sovereign states and their pride, and at the same time, have the appropriate union in order for all what is their common wealth, I would say, to be governed at the appropriate level, which is the level of Europe.

QUEST: The mandate is price stability. It has guided you over eight years and, indeed, you have now famously described as impeccable your implementation of price stability.

So the question is, is that the right mandate?

TRICHET: Price stability is not only good per se because your democracies, your people are asking you to deliver price stability, but it's also a necessary condition, the best contribution you can offer to sustainable growth and sustainable job creation.

QUEST: Finally, the concept of moral hazard, has it gone out of the window?

Does it exist anymore?

TRICHET: I -- I would say certainly, yes, of course. And the main lesson we can grow from the present crisis is that we should never let the financial system -- and by way of consequence, the real economy, to be that fragile, because it is the fragility of the system which made the collapse of one institution to have the capability of triggering the house of cards to fall down.

So it is very important that we have a financial system which would be much more resilient and make any mistakes where you should be able -- able to have major problems without triggering this, you know, sequence, the chain reaction.

So this is a work in progress.

QUEST: Jean-Claude Trichet has been a unique central banker. He has frequently given press conferences and interviews and justified the policies and transparency of the bank. while academics may debate for years the rights and wrongs of the way he handled the crisis, the consensus seems to be for Jean-Claude Trichet and the bank, it's a job well done.

And that's our report for tonight.

I'm Richard Quest in Frankfurt.

Whatever you're up to in the hours ahead, I do hope it's profitable.

TRICHET: All the best.