Former ECB President Trichet on Global Economy, Trade

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00:00Well I would say that we have in a way avoided a real catastrophe. I remember the time of the

00:09liberation day and all the bad consequences that were ensuing all over the world. Then we had

00:16fortunately the polls, only seven days after the start of this rocky period. So all taken into

00:26account, we went through this, I would say, dramatic change in the policy of the United

00:33States, new administration, not dramatically. That being said, the scars are still there.

00:42We can see in the case of the relationship between the US and China how it hampers the, I would say,

00:50global economy taking into account the size of the two, of these two economies. And we have also

00:58to consider that the world today, also independently on the changes of policies that I just mentioned,

01:08the world today is in some respect more dangerous than it was even before the Lehman Brothers crisis.

01:19because you have an overall amount of debt outstanding, public debt and private debt all

01:28over the world, which is higher today than it was at that time. So that creates, of course, elements of

01:36fragility, which calls for extreme, I would say, vigilance for all those who have a responsibility. I'm

01:45taking both of the public sector, the authorities and the private sector. So let's be very vigilant,

01:53very cautious. The world is really dangerous.

02:00Mr. Trouchet, you talked about how the world is in a period of fragility, and that has to do a lot with

02:06the debt we're seeing right now. We're also beginning to see, perhaps, caution when it comes to private

02:13credit. We heard the likes of Andrew Bailey saying that he's stress testing that market. How are you

02:19assessing the risk from that? I think it is part of the problem we have.

02:27As I said, debt outstanding has increased a lot. And we have also seen a lot of increase in areas that are not in the

02:37hands of the commercial banks, namely not in the hands of these, I would say, entities that are under

02:46under regulations, and the potentials. So clearly there is there. On top of the volume of the credit

02:56concern and the outstanding debt concern, we have also a problem of absence of appropriate, I would say,

03:06handling of the handling of the overall regulations in the non-bank sector. And what you are mentioning

03:14is part of this problem, which calls, and I fully agree with the Governor of Bank of England, extreme caution, extreme vigilance.

03:28Sir, it really struck me in your first answer when you mentioned that this current issues that are

03:34rising. The dangerous situation you talked about in the credit markets is potentially even worse than the

03:40Lehman collapse and what subsequently happened was the global financial crisis. What then, what is your

03:47your urgent call for regulators, for central bank chiefs, for policy makers and corporates to do to fend off

03:57what those storm clouds suggest? Well, I was mentioning one indicator. I am not a Cassandra, which announced a

04:08catastrophe in a few days or a few half days. We have to take into account a lot of indicators. And one

04:18major indicator is that the authorities in particular are extremely vigilant. We could see that when we had

04:25these problems of the regional banks in the United States, the rapidity of the reaction of the authorities,

04:33and not the Treasury and the central bank, was striking. So, nothing to do with the period immediately

04:43after Lehman, whether when there was a lot of hesitation of what to do exactly, and a lot of absence of full

04:50understanding of the gravity of the situation. So, from that standpoint, I mean, the vigilance of the

04:55authorities, I am reassured. But I mentioned one indicator, which is an objective indicator, namely the

05:03outstanding debt as a proportion of GDP at a global level, and also at the level of the advanced economy, as

05:12as well as the major increase in the emerging world. And China is also a case in point. So, we have really

05:20there elements that are calling for great vigilance.

05:28To a certain point tied to that is central bank independence. I know you're on record as saying you're

05:35quite concerned what has transpired in the United States. How important at this time then is that

05:42central bank independence from leaders and policy makers?

05:49I think more than ever, of course, in such periods which are extremely dangerous,

05:54the central banks, which are always at the front line when there are big problems,

05:59countries have to be independent. I think it was really one of the major conclusions of the last 30

06:07years, and certainly one of the major conclusions after a period which was a very, very important period

06:17after the first oil shock and the second oil shock. I realized at that time that independent central

06:24bank was really of the essence. So, from that standpoint, of course, I am alarmed by the, I would say,

06:33observation that we have of the relationship between the executive branch and the central bank in the

06:40United States of America. I consider that it would be very bad if it appears that the independent Fed,

06:52which was, I would say, fiercely independent in the recent period, as well as since

07:01many years, many years, it would be a catastrophe if it appears that the Fed becomes depending on the

07:09executive branch. The market will not appreciate that at all, and I am sure that the impact that that could have on

07:18the market would be a reason for the executive branch concerned not to continue to embark on such a move.

07:30We will see.

07:33Mr. Truchet, I'd like to pivot to cryptocurrencies. I remember back in 2019, you talked about how you

07:40doubt cryptocurrencies can be the future in finance, play a role in fact, given where Bitcoin is trading

07:48right now in access of $100,000. I mean, how are you looking at the cryptocurrency space? Do you still

07:54hold the same view?

07:56I would make the difference between the cryptocurrencies that have not the characteristics of currency,

08:04according to Aristotle, namely be a unit of account, a mean of exchange, and a store of value. The Bitcoin

08:17you mentioned is not a store of value. It goes up and down, up and down. I would say it's more of a

08:24speculative asset. And I don't think that this speculative asset could really be a currency. And that's

08:34the reason why the main issue now is what do you do with the overall stablecoin. And I have to say that

08:46from that standpoint, we could see a very rapid expansion of the stablecoin. Over five years,

08:54it went from $5 billion to $300 billion or something, and it will continue to grow.

09:00So, of course, the administration in the US has a special attention to this new instrument, the stablecoin. We will

09:11see where we go. But my own understanding is that it has to be controlled. The major mistake we made, in my opinion,

09:20in the past, in the past, was to let these so-called speculative instruments, like the Bitcoins and other, many other,

09:29gallop with the theory and the doctrine that they were totally independent of any authority, that they were not

09:38regulated by any kind of normal regulation, if I may, and that they could do whatever they wanted,

09:48including financing criminal activities, including financing terrorism, why not, including fraud,

09:57fiscal fraud, fiscal fraud, and so forth. So that was not correct. And I stick to my previous position.

10:05We should not let this galloping of, I would say, totally unregulated, totally obscure operations.

10:19But we have to... Sir, sir, sir, here at the BAN Summit, I want to bring it back quickly to the tariff issue. We're

10:31obviously waiting a Xi-Trump meeting, possibly to find common ground, or maybe not. The first six months has not created

10:38tremendous amount of inflation as predicted. What do you think the next six months potentially could see on the trade front if this

10:46tariff regime continues and even escalates? Well, I think that the economists were not wrong. I mean,

10:54because it takes time for inflation to be pushed up by the tariffs. And in my opinion, it is delayed.

11:03But we have to expect, unfortunately, of course, an impact on the U.S. economy, which would not be negligible.

11:11And, of course, comes at a moment which is not opportune, because there was, of course,

11:18the fight against inflation, which, by the way, if I may, has been done very well by the Fed and by the ECB and by

11:28other central banks. All central banks have been very responsible in a period where inflation was

11:34the, you know, picking up at 10 percent or even more than 10, and they could regain control largely.

11:42Of course, in the United States, it's particularly complicated because of the tariffs, because also of

11:52other elements that have an impact, inflationary impact, the immigration policy and so forth. And we will see

12:00what happens. But I have to say that the task of the Federal Reserve is very difficult, that I pay homage

12:08to Jay Powell for all what he has been doing since, I would say, the surge of inflation, all taken into account,

12:16it was highly responsible.

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