A Positive Balance Sheet for Mr. Euro

When Wim Duisenberg appeared before an expectant press for the first time after being named president of the European Central Bank on June 9, 1998, the focus was still on the political wrangling that had overshadowed his appointment.

Officially, he had been elected for an eight year term. But France was vehemently opposed to the former Dutch finance minister taking the helm of the powerful new body and wanted to see its own candidate ensconced in the post. And Germany, which won the seat of the ECB in Frankfurt, opposed a Frenchman at Europe’s economic helm.

After a protracted struggle, Duisenberg issued a personal statement saying he would be prepared to step aside early for reasons of age and cede the presidency to Jean Claude Trichet, who had already been nominated as successor. Under the deal worked out, Duisenberg would stay in office for just four years -- until 2002 when Trichet would take over. But the governor of the Banque de France was embroiled in a financial scandal which prevented him from taking on the job until 2003. Only after being cleared of complicity in producing misleading accounts for the Credit Lyonnais while at the Treasury during the 1980’s could Trichet officially be appointed to the ECB position.

Introducing the euro

When Duisenberg stepped up to the helm in 1998, he faced a difficult task: guiding Europe through the biggest currency conversion of all time. In a masterpiece of logistics, the ECB presided over the simultaneous switch from 12 national currencies to the single euro.

"By the time we had started we had prepared for a number of scenarios in which something or the other could have gone wrong", Duisenberg explained, referring back to the start date on January 1, 2002. "But there was one scenario we had not anticipated and that was that everything would turn out better than we had expected."

After a promising launch, the euro began to depreciate against the world's major currencies. There was no shortage of ridicule, frequently from non-euro zone countries. "Euro Dead" was a headline in the British tabloid The Sun, which also referred to Duisenberg as "Dim Wim."

In the meantime, criticism of his leadership at the European Central Bank has subsided. Misunderstandings on the financial markets between Duisenberg, bankers, brokers and chief economists are now a thing of the past, or at least not the media sensation of a year ago.

Focusing on the bottom line

Duisenberg kept the ECB's main goal in clear focus and pursued it with great vigor. The annual rate of inflation was kept at around two percent; prices, in other words, remained relatively stable. Consequently, Duisenberg was able to build up public confidence in the ECB as stabilizing economic institution. Lower inflation, for instance, had been previously more or less unheard of in southern European countries.

At the beginning, Duisenberg feared that the ECB would be unable to maintain its independence vis-à-vis European governments. Such worries were groundless. Calm and collected, the guardian of monetary stability soon won the respect of European governments as a tough, formidable figure. He was particularly critical of France and Germany's burgeoning public deficits and warned them not to tamper with the stability pact even though they both violate its three percent ceiling.

Not one to hold back his criticism, even during his last days at the ECB, Duisenberg told Deutsche Welle that "eight out of the twelve countries have already meet the conditions laid down in the stability pact. But not France, Germany, Italy and Portugal."

"You do not change the rules in the middle of game," the wise financier stressed.

The rise and fall of a reputation

Duisenberg's reputation went up and down with the rate of the euro on the foreign exchange markets. At its lowest point the euro was worth 83 U.S. cents, now it's worth $1.15. Indeed, there are now even concerns that it could be harming exports in Germany, a position that contrasts strongly with earlier fears that weaker national currencies would mean a permanently downtrodden euro.

But it all shows that the president of the European Central Bank has to walk a thin line. Wim Duisenberg was able to master this balancing act. It remains to seen whether Jean Trichet possesses the same dexterity.