- Associated Press - Sunday, October 9, 2011

FRANKFURT, GermanyJean-Claude Trichet, the euro’s chief guardian, this month will leave the European Central Bank (ECB) in a very different place from when he took the helm in 2003, with a dramatically expanded role to fight the government debt crisis.

The bank has gone from arbiter of interest rates to chief firefighter in the crisis, government creditor and even political enforcer of budget cuts on elected governments.

It’s a role that Mr. Trichet, who last Thursday chaired his last monthly ECB news conference, took on with reluctance and, many say, with little choice.

The bank’s bold steps against the debt crisis have so far kept the eurozone from a widespread collapse of government and bank finances.

But those emergency measures, particularly the purchases of troubled governments’ bonds, mean long-term risks for the bank’s credibility as the key institution behind Europe’s 12-year-old shared currency.

It is even still possible that Mr. Trichet’s legacy could be marked by unforeseen events in the final three weeks of his eight-year term, which ends Oct. 31. The crisis is still alive with worries that Greece might default, which would rock Europe’s banking sector.

Many expect it will be years before it is clear if the path Mr. Trichet has led the ECB down was the right one.

“The book is very much still open, and the assessment of the ECB policies during this crisis will only be possible in quite some time,” said Marie Diron, senior economic adviser to Ernst & Young. “But on the whole, he probably leaves the ECB in a stronger position.”

“The ECB has played probably a much bigger role during this financial crisis than it would have envisaged at the beginning,” she said, “by the broad nature of the interventions that it had to take, the size of the interventions that it had to take, and the political roles that it had to play in negotiations on debt restructuring and fiscal policies.”

The 68-year-old Mr. Trichet started saying his public goodbyes on Thursday at his final post-meeting news conference after a meeting of the bank’s 23-member governing council in Berlin.

Mario Draghi, currently head of the Bank of Italy, was chosen by eurozone leaders as his successor and takes over Nov. 1.

One token of the bank’s burgeoning role can be seen in the detailed letter Mr. Trichet and Mr. Draghi wrote in early August to Italian Prime Minister Silvio Berlusconi.

The two unelected central bankers pushed Mr. Berlusconi hard to move quickly on cutting Italy’s deficit, and urged specific changes, such as cuts in public employees wages, according to a leaked text published in Italy’s Corriere della Sera newspaper.

Mr. Trichet says there was no “negotiation” with governments over the terms of the bank’s help.

But the fact remains that the ECB and the bond purchases, which drove down interest rates on government debt after they were launched Aug. 8, were, and still are, the only thing between Italy and a possible death spiral of higher borrowing costs.

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