The ECB’s Tone-Deaf President

PALO ALTO – Once upon a time, European Central Bank President Jean-Claude Trichet communicated effectively with the outside world. Not anymore.

More than a few eyebrows were raised after the ECB’s January Governing Council meeting, when Trichet threatened that the Bank would act “preemptively” if labor unions tried to embed higher energy and food prices into new contracts, risking a wage-price spiral.

This threat took a heavy toll on the ECB’s credibility, since an interest-rate hike in the midst of the most serious financial crisis in decades was obviously absurd. No one believed it, and the ECB not only withdrew its clumsy threat the next month, but it adopted a policy of interest-rate neutrality.

But the announcement of this policy change at the February meeting also did not go smoothly. Trichet somehow garbled the Council’s message in his press conference, making it sound as if the ECB wanted to shift to an easing bias instead of “wait and see” neutrality.