MEPs mulled over the European Central Bank's work within the ECB/IMF/EU Commission "Troika", and more generally in the early days of the crisis, at a hearing attended by former ECB President Jean-claude Trichet on Tuesday.
In the second hearing of the week dealing with the Troika's role and operations, MEPs strove to elicit explanations for the actions and positions taken by the ECB. Members asked specifically why Mr Trichet had initially opposed restructuring Greek debt, why he had not bought government bonds of embattled countries more vigorously, and why the ECB had written secretly to certain countries requiring reforms when this was not the role of a monetary authority.
Other MEPs demanded Mr Trichet's opinion as to whether the construction of the reform programmes, especially for Greece, had been faulty, and what would have happened had EU countries not bailed out Greece in the first place. Looking forward, MEPs also asked Mr Trichet's views on what model should replace the Troika.
The worst of all possible worlds
In his replies, Mr Trichet repeatedly noted that the situation had been "dramatic", especially when Spain and Italy were under attack. He acknowledged that the Troika or reform programmes were not perfect, but stressed that the "extremely difficult circumstances" demanded rapid action, such as the letters sent to Italy and Spain. "In an ideal world this would not have been done, but we were in the worst possible world", he said.
Debt haircut just for Greece
Various MEPs criticised Mr Trichet for having delayed a "haircut" of Greek debt for too long, thus exacerbating the problem. He replied that he had first needed reassurances from the member states that a restructuring of Greek debt would not have become a model to be replicated, because that would have rewarded speculators, rather than real investors.
Better governance key to the future
Asked whether a stronger stability and growth pact would have prevented the crisis, Mr Trichet acknowledged that it had been the watering down of EU fiscal rules that had allowed countries like Portugal and Greece to go over the edge. Strong governance would be vital to future success, Mr Trichet said, adding that the advent of a future system should mark the disappearance of the Troika one and a move to prevention rather than cure.
Mr Trichet also said that in a future governance system, the European Parliament and national parliaments should act as arbiters between the European Commission and national governments. Where the Commission and a government disagree on what reforms to undertake, it should be up to the European Parliament and that country's national parliament to decide, he said.