Newsweek: Is 9-11 a setback for globalization? Duisenberg: No. The feeling that we are living in one world is enhanced. That we finally managed to make a success of the world-trade round, and China is a member, is a great achievement. We will take up the thread at the G20 and the IMF meetings.
How will it affect the slow economy? I cannot quantify that. The downward movement in business confidence was already underway for about six months. It has certainly aggravated the fall, not only in Europe but across the world, and made it more likely that we are now going through a period of very slow growth indeed. At the same time, conditions are in place for a recovery in Europe. We expect it to start in the first half of next year. It will be slower and because of 9-11 smaller than anticipated. I have no number yet.
So in Europe there will be no recession? That’s right.
A lot of people disagree with you. I haven’t counted them. But in our analysis [of the last two quarters of 2001] growth will be close to zero but just above.
Have things changed so much that traditional policy tools aren’t working? The period we are going through is highly psychologically determined. Confidence has to be restored. I have strong doubts whether either fiscal or monetary policy can be the only tool to do that.
What can? Slowly, the experience in people’s minds that the worst is over, that there is no longer any reason to be scared of the future. The best thing we as authorities can do is to exude stability, continuity and safety. To demonstrate that, as far as we are concerned, such things happen in our lives and we are on top of it.
Is it up to the central bankers? In our eyes it is an illusion that monetary policy alone can do the trick.
But Europe has spending constraints. The major constraint here is that we still have more structural rigidity, and reforms take time. Flexibility in the American economy is larger, such as in labor markets, shopping hours and so on.
You’ve been saying that repeatedly. Well, I’m right.
Are they listening? Are things changing? They are changing, but slowly. You can find areas where labor markets have become more flexible, but still not flexible enough.
Are the many upcoming national elections an obstacle? Nothing spectacularly out of the ordinary. Countries in the European monetary union are adhering to the goal of a balanced budget over the medium term.
Three years into the job, have you earned more credibility? I’ve always said the main thing, if not the only thing, that we are to be judged upon is whether we achieve our target objective, which is price stability in the euro area. We have delivered and will continue to deliver. People are beginning to recognize that.
Are you fighting the wrong war? I have a constitution [the Treaty of the European Communities]. I also happen to believe in it. Preserving price stability over the long term creates a climate of certainty in expectations, which is the best contribution I can make.
Some say the rate cut of last week came late. We had more factual information about developments, such as new confidence indicators. We are not as concerned about the current rate of inflation as about the rate a year from now. Before, we hoped more than we knew.
Are you ready for the [Jan. 1] euro launch? We have no doubt at all that the transition will be very smooth. I will feel great relief and great satisfaction once that part of the job is over.
