The Duisenberg Factor
As Euroland is born, nobody has a more important role to play than the president of the new European Central Bank
Willem (Wim) Duisenberg wants you to believe he's got nothing to worry about. As he chain-smokes Marlboro 100s in his 34th-floor office overlooking Frankfurt, the president of the new European Central Bank seems ready, willing and a little amused as he contemplates the monetary empire he will rule when the euro is launched. The 63-year-old former head of the Dutch Central Bank is tall and casually imposing. If the current rash of central-bank bashing bothers him, he doesn't show it. Recently he spoke for more than an hour with NEWSWEEK's Christopher Dickey and Friso Endt. Excerpts:
NEWSWEEK: What is the European Central Bank? What do you do?
DUISENBERG: The core of what we call monetary union is to fix the exchange rate of the participating countries irreversibly and irrevocably. That means you have to have one authority to oversee monetary policy. The bank is that single monetary authority.
To what extent will your decisions be affected by the national central banks?
None whatsoever. We will have the system of European central banks which has one decision-making body: the Governing Council. Its members are the six members of the executive board of the ECB, and the 11 governors of the participating central banks. But they are members in their personal capacity--they do not represent a country, and they do not represent a national central bank.
What are you going to tell the public about these decisions? When are you going to tell them?
Almost continuously. The only thing we will not do is publish the minutes of our individual meetings. That is for reasons which by now are well understood, at least in continental Europe. Publishing minutes could reveal positions taken by individual members of the decision-making body. That entails the danger that those individual members, although they do not represent countries, will be put under pressure in their countries. When you publish the minutes of meetings, you make it much more difficult for people to reach a consensus.
What are the pillars of your policy?
The primary task of the European system of central banks will be to achieve price stability. So the first thing we need is a definition of price stability: an increase, over the medium term, of below 2 percent. How do you achieve that? We will define a reference value for monetary growth, and we will monitor that closely. We will look at a broad range of indicators which will help to tell us what prices actually are doing, and what they are expected to do. And, of course, we will make inflation forecasts.
So you will make inflation forecasts?
Oh, yes. But we will not publish them--at least for the time being. When you publish forecasts, you really run the danger that they become self-fulfilling prophecies. And, particularly in the beginning, the transition to the euro could have an impact on old established economic patterns of behavior.
Can Europe remain an island of tranquillity in a sea of global troubles?
We will do the utmost to keep it that way. Despite problems elsewhere, in Europe the exchange rates remain virtually untouched; interest rates do not diverge. On the contrary, they converge and keep converging. That is gratifying. There is a sense in the market, almost, as if the euro is already there.
How long do you think it will take for the euro to become a reserve currency?
It could be five years, it could be a decade. I don't know. It took about 60 years for the American dollar to replace British sterling as the world's reserve currency. I think the euro will establish its position in the world much more quickly than that.
France, in particular, wants the ECB to be politically sensitive.
I know of no central bank in the world as independent from political influences as the European system of central banks. It is explicitly forbidden to accept instructions or proposals from any body, or entity, or person, and in the Maastricht Treaty public persons are forbidden to try to influence the central bank. Not to say that they don't do it. They try. But we, on our side, are totally independent.
So, to whom are you accountable?
To the public.
But they don't elect you, nor anybody on the board.
Well, I'm accountable to the European Parliament, to European governments--accountable in the sense that I am going to explain what we are doing. Nobody can sanction me. But that's no different from, for example, the United States.
The French insisted that you agree to resign before the end of your term in favor of a French candidate. What is the final understanding there?
I only know my part. I have been appointed for eight years, and it is up to me to decide when to leave.
When might that be?
Within eight years.
Not at the end of four years?
No.
Between four and eight years?
That approaches the likelihood.
Do you lose sleep at night over the enormous change that's about to sweep Europe?
I don't have big worries. Things are so well entrenched, both here and in the national central banks. But we do work like hell, I must confess.
The U.S. has cut interest rates. What's the ECB going to do?
We see no need in Europe, so far. Official interest rates in two thirds of Europe are now 3.3 percent, and the move is on for the rest to gradually lower in that direction until we have one single interest rate.
But aren't you concerned that people will say the world economy is collapsing and Duisenberg, like Candide, is just tending his European garden?
We are not inclined to think in terms like that. We see big difficulties emerging in some Asian countries, and potential threats in one or two Latin American countries. We see developments in the U.S. We try carefully to analyze what is happening in Europe. As I said, Europe will not quite be immune. Of course not. But we think the dangers can be contained, if we follow sensible and steadfast policies. We think we can handle it.
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