In reality, it now appears that both got more credit and blame, respectively, than they deserved. This is becoming especially clear as Europe's economic growth remains poised to outpace that of the U.S. in 2001. Ultimately, the real difference between Greenspan and Duisenberg may come down to timing and luck, rather than some magic touch they may or may not possess.
Let's start with Duisenberg. He had the difficult challenge of becoming the E.C.B.'s first president. Shortly after the euro was introduced, it weakened in foreign exchange markets. No big deal. Such fluctuations have been normal for years in currency trading, an insight that escaped many observers eager to view the temporary decline of the euro as cause for alarm. To these people, Duisenberg provided a convenient target, even though Europe's problems — its relatively inflexible labor markets, for example — are hardly the responsibility of the E.C.B. Nor can they be effectively addressed by monetary policy. Duisenberg's "failing" was to be the right man at the wrong time.
Now the U.S. economy is slowing, as many economists had forecast. But the correction in stock prices has been far more severe than anticipated, leading some investors to search for a scapegoat. Increasingly, they are zeroing in on the once infallible Greenspan, who may soon find himself suffering Duisenbergian fortunes. But it is just as wrong to blame the U.S. slowdown on Greenspan as it is to judge Duisenberg by the weak euro. As it turns out, neither man had the personal power to materially change these fundamental events.
This little lesson in the blame game may be of special interest to the new U.S. administration. Paul O'Neill, now Secretary of the Treasury, has some big shoes to fill. His predecessors Robert Rubin and Larry Summers presided over a booming economy, with the popular combination of soaring stock prices and a strong dollar. Indeed, foreign exchange traders tend to assign much of the credit for the dollar's strength to Rubin and Summers' verbal support for such a condition. In truth, however, all the duo's jawboning probably had little impact on the currency's actual value. The real reasons for the dollar's strength were rooted in the desires of international investors to buy U.S. assets — not in any pronouncements by various Treasury Secretaries.
Odds are the dollar will fall over the next year or so. If so, it will have nothing to do with Secretary O'Neill — and everything to do with a sliding U.S. economy and economic reform in Europe. But, as the dollar and, more importantly, U.S. growth, falls, O'Neill is likely to find himself unfavorably compared with his predecessors. After all, critics are likely to opine, the Rubin-Summers regime kept the dollar and the economy riding high. Why can't the new guy do the same? It would surely be unfortunate for O'Neill, like Duisenberg, to be labeled a "failure" for a phenomenon over which he has little control.
More important than one man's fate, however, is that markets — and politicians — need to come to a more realistic understanding of the power of policymakers. Rather than searching for somebody to blame for short-term market dips, we should judge these officials on what they have done to improve the fundamental operations of the economy, regardless of where it was when they took the helm. By those standards, Duisenberg has been a solid success, having ushered in a smooth transition to the single currency while keeping his eye on real problems — such as inflation — rather than the gyrations of the foreign exchanges. Similarly, Greenspan should be judged on how he has helped the U.S. adjust to its new circumstances, not on the latest economic data or NASDAQ numbers. And O'Neill should be congratulated if he puts in place policies that support long-run economic growth in the U.S., regardless of what happens to the dollar over the short term.