ECB’s Insider Connections Under Scrutiny Again

Necessary to “maintain a dialogue” with external actors, says ECB

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

Just months after chastising former European Commission President Jose Manuel Barroso for accepting an “advisory” role with Goldman Sachs, EU Ombudsman Emily O’Reilly has a new job on her hands: investigating the close ties ECB President Mario Draghi and aides have with private banks. The inquiry, launched after a complaint lodged by the NGO Corporate Europe Observatory (CEO), will delve into Draghi’s membership of the Group of Thirty, a secretive forum of influential finance executives, academics, and policy makers.

“CEO research has exposed a severe lack of critical distance between the ECB’s decision-making bodies and corporate bankers in the G30,” the NGO said. “Our study shows that high-level employees of the ECB are far too close to the representatives of the banks they supervise and that the information they transmit at the G30 meetings is out of control,” asserted Kenneth Haar, a member of CEO.

The Washington-based Group of Thirty (often shortened to G-30) was founded in the late seventies at the initiative of the Rockefeller Foundation, which also provided start-up funding for the organization. Its current chairman is Tharman Shanmugaratnam, the deputy prime minister of Singapore. The chairman of its Board of Trustees is Jacob Frenkel, a former governor of the Bank of Israel and current chairman of JP Morgan Chase International.

The Group of Thirty’s membership reads like a Who’s Who of the world of global finance. It includes establishment economists such as Lawrence Summers, Paul Krugman, and Kenneth Rogoff, as well as current and former central bankers like Haruhiko Kuroda (Bank of Japan), Mark Carney (Bank of England), Mario Draghi (ECB), Christian Noyer (Banque de France), and Jaime Caruana (Bank for International Settlements). It also comprises senior representatives of financial corporations with subsidiaries supervised by the ECB, including Axel A. Weber (UBS), Gail Kelly (UBS), Tidjane Thiam (Crédit Suisse), Guillermo de la Dehesa (Santander), and E. Gerald Corrigan (Goldman Sachs).

This cozy little forum meets twice a year to “deepen understanding of international economic and financial issues, and to explore the international repercussions of decisions taken in the public and private sectors by market practitioners and policymakers.”

It all sounds innocent enough. According to the ECB, its active role on the G30 is necessary to “maintain a dialogue” with external actors. “We consider the G30 as a relevant forum to discuss, always reminding ourselves that we have a set of rules and instruments to avoid conflicts of interest, apparent or potential,” it said.

Those “instruments” apparently include an ethics committee headed by Jean Claude Trichet, Mario Draghi’s predecessor as ECB Chairman and, as luck would have it, G30’s honorary chairman.

This is not the the first time the EU Ombudsman has carried out an investigation of the ECB’s ties to G30. It conducted a similar inquiry at CEO’s behest in 2012 and 2013, concluding that “the allegation that the ECB president’s membership of the Group of Thirty is incompatible with the independence, reputation and integrity of the ECB is not justified.” CEO has called for a fresh investigation in light of the ECB’s much larger role in European finance.

Since 2014, the ECB has become the Eurozone’s sole banking supervisor. In the absence of a genuine European central or federal government with direct fiscal powers, it is now arguably Europe’s most powerful institution. As we saw in its standoff with Greece in the summer of 2015, when things get serious the central bank is not afraid to mobilize its full arsenal of weapons against a Member State, even if that means sparking the early stages of a run on its banks.

Just two days ago, the ECB fired another shot across the bow, warning that Italy would face an unpayable bill if the country’s citizens dared to take the democratic decision to quit the troubled euro. “If a country were to leave the Eurosystem, its national central bank’s claims on or liabilities to the ECB would need to be settled in full,” Draghi wrote in a letter to two Italian lawmakers. In other words, abandoning the Eurozone is an unaffordable luxury for countries with large Target 2 liabilities like Spain, Greece, Ireland or Italy, which owes the ECB a staggering €358 billion.

But it’s not just the vast power with which the ECB holds sway over Europe’s economies that’s cause for mounting concern; it’s the complete lack of transparency and accountability with which it yields that power. In 2015, a member of the ECB’s highly influential Governing Council, Benoît Cœuré, was caught sharing confidential, privileged information about the ECB’s imminent bond purchases at a meeting of academics, bankers, and hedge funders to allow them to front-run the program.

In the wake of the scandal, Cœuré was given the daintiest of slaps on the wrist and the ECB adopted new rules on how and when to associate with financial lobbyists and representatives of financial corporations, none of which has stopped it from intensifying its involvement with G30, which includes senior representatives of some of the world’s biggest banks and investment firms.

Its agents have also been buying up bonds from companies behind closed doors via “private placements” — a common enough practice for private investors but one which raises serious ethical concerns when it’s being done by Europe’s newfound “debt buyer of first resort,” with billions of euros of public funds.

There’s also plenty of opportunity for the ECB to inform select hedge funds and certain other market participants of its latest investment decision, so that they can front run the investment. Naturally, its participation in private placements was all on the QT, but it, too, was leaked – and the ECB had some explaining to do.

Now, thanks to the EU Ombusman’s latest inquiry, it will have even more explaining to do. And it might end up tweaking its rules a tiny little bit, but its practices are unlikely to change any time soon. By Don Quijones, Raging Bull-Shit.

“What they sell is escape: from the laws, rules, and taxes of jurisdictions elsewhere, with secrecy as their prime offering.” Read…  World’s Worst Tax Haven Threatens to Expand its Operations

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  20 comments for “ECB’s Insider Connections Under Scrutiny Again

  1. Nik says:

    Nice to see the ‘Three Blind Mice’ are alive,well and greatly profiting from ‘Cheezy’ Operations in the EU…lololol

  2. Bruce Adlam says:

    One of the problem with the EU is that its not democratic you cant vote mario drahi out in 4 years time.like the US you can vote Trump out in 4 years time .EU if it survives will always be a problem if the CITIZENS OF EU DONT HAVE THE OPPORTUNITY to clean out the old guard every 4 years

    • Wolf Richter says:

      But wait… last I heard, we cannot vote out the Fed Chair either. We’re only allowed to admire them and dance to their tune.

      • Bruce Adlam says:

        Its one thing to alter interest rates to stimulate or slow an economy. But it’s quite different to print 4trillion in QE to manipulate selected markets for the favered few. Which I don’t believe they had a mandate to do

        • nhz says:

          I keep repeating: it’s not for the favored FEW, it’s for the favored MANY.

          Most debtors are hugely profiting from the free money bonanze (as long as interest rates do not revert back to normal), and this certainly includes all EU homeowners with a mortgage who are paying next to nothing for housing and see capital gains that are bigger than normal income (and tax free as well, in countries like Netherlands).

          Yes, theoretically all these homeowners lose what they have won when rates go up from the current near-zero to 4-6%, but that doesn’t seem likely within the next years (or probably, within our lifetime …). And many of these homeowners have either some kind of government protection that means they cannot lose, or they simply make sure that they spend all the gains so there is no blood to draw from them. Unlike renter evictions, homeowner evictions are extremely rare in most of Europe.

          As Draghi says: yes, his policy is not ideal for EU savers, but there are also people (including many voters) who profit from NIRP, so it’s all good :-)

      • cdr says:

        I think Trump could hound her out if he really wanted to. Perhaps she’s a little further down on the list? We can only hope.

      • Jungle Jim says:

        Maybe not, but I suspect that threatening to have the Fed audited would not be well received. That threat might make them a lot more reasonable. A full audit would air a lot of dirty linen and (dirty) deals.

    • nhz says:

      Even worse, you can’t vote the European Commission out either, and that’s where the real power (and lobbying/bribing pivot) is. The whole EU structure is anti-democratic, the EU Parliament is just theater.

      Just like the comments from some EU national central bankers are just theater, in reality the whole ECB is run by Goldman Sachs.

  3. Neil says:

    la-di-dahhhhhh… it just never gets old, corruption… does it?

    For some interesting insights into the ‘workings’ of the EU, this is a good (2012) documentary: The Brussels Business http://thoughtmaybe.com/the-brussels-business/

    “Brussels, the capital and largest city of Belgium, has a long history of hosting the institutions of the European Union within its European Quarter; while the Union itself claims it has no capital and no plans to declare one–despite the fact that Brussels hosts the official seats of the European Commission, Council of the European Union, and European Council, as well as a seat of the European Parliament. In any event, it is here–in this centre of smoke and mirrors–that exists one of the largest concentrations of lobbyist power in the world. The Brussels Business scratches the surface of this extensive world hidden-from-view by looking at the direct influence of lobbyists and the complete lack of transparency in the decision-making processes. Speaking with lobbyists and activists themselves, The Brussels Business reveals the beginnings of a vast landscape of PR conglomerates, front companies, think-tanks and their closely-interlinking networks of power and ties to political and economic elites. The questions then become: Who actually runs the European Union? How? And why?”

  4. walter map says:

    When they conquered the world you’d think they’d at least be polite about it and make an announcement. I guess they decided to just let you figure it out for yourselves.

    Subject drones should find that their new masters are mostly benevolent, so long as they know their place and don’t cause any trouble.

    You probably think I’m being cynical and sarcastic, but you’ll notice there’s no ‘snark off’ switch.

  5. Maximus Minimus says:

    The shady state that supervises the deep state, but democracy is the best…

  6. cdr says:

    Long ago, the mafia discovered the real money was in Las Vegas. Then they discovered pension funds.

    Today, the oligarchs are following the mafia innovation and have captured central banks. Well done.

    • cdr says:

      How do you capture a central bank?

      First, it’s a long game with a lot of moving parts.

      You need academia support to create bogus theories that state printed money at abnormally low or negative rates is a fantastic idea. Anyone who disagrees is marginalized and their career is hurt. Anyone who agrees and sells it well is promoted and rewarded in lots of ways.

      You eliminate currency to support the creation of negative rates.

      You put ‘your people’ in positions of influence. All are pre-screened in the first place so few to none will dissent unless it’s part of the game to look legitimate. Each will eventually be replaced with like minded supporters. These people of support include politicians and central bankers. Monetized debt keeps the politicians happy.

      You wait for a crisis and move fast to use low rates and printed money to your advantage. The crisis never goes away. Your people see to that. Even if it’s really gone, it never goes away, according to your people.

      Easy peasy.

    • Maximus Minimus says:

      The definition of mafia: a shady organization that feeds off the host, but does not strive to become the host.

  7. Brian says:

    Jan 23, 2017 Thomas Sowell – Government and Economic Policy

    Government interventions in economic activity have a history of being bad policy.

    https://youtu.be/HzgHhBA-iqw

  8. Tom Kauser says:

    Another fine creation from our guys and gals at BATTELLE?
    Ever wonder how everything always fits together so neatly and the hidden hand keeps the vino flowing?

  9. Brian says:

    Jan 15, 2017 People to Davos: Get out of your bubble

    CNNMoney talks to people around the world to get their perspective on global leaders heading to Davos for the World Economic Forum.

    https://youtu.be/4MNnV96jnjo

Comments are closed.