Is the ECB out of Control?

How much money could be made to disappear in Italy’s bank bailout?

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

It all began with an early morning police raid. On July 6, Slovenian Police, acting on an insider tip, stormed the headquarters of the country’s central bank, the Bank of Slovenia, and seized information stored on the bank’s internal network. It also raided the headquarters of the major state-owned bank Nova Ljubljanksa and the local offices of international accountancy firms (and prolific enablers of corporate misbehavior), Ernst & Young and Deloitte.

The police were investigating allegations that some “legal entities” had abused their office in valuing equity at Nova Ljubljanksa during its bailout by the state in 2013. €257 million is alleged to have been misappropriated, during the €3.2 billion bailout of the banks.

The action provoked a furious backlash from ECB chairman Mario Draghi, who wrote the following in a strongly worded letter:

The ECB deplores that there was no attempt to find a solution reconciling the conduct of the pre-criminal investigations with the ECB’s privilege on inviolability of its archives…

The ECB also regrets that the actions of the Slovenian Police risk putting into question the fulfilment of the Bank of Slovenia’s tasks as a member of the Eurosystem, as well as that of its governor in his personal capacity as a member of the Governing Council of the ECB.

Both Slovenia’s central bank and Finance Minister Dusan Mramor, who unexpectedly resigned on July 13, sided with Draghi, arguing that the probe represented an attack on the central bank’s institutional independence. They both called on Prosecutor General Zvonko Fiser to conclude his probe into the €3.2 billion recapitalization of state-owned banks as swiftly as possible.

But not everyone agrees. According to the police, legal entities, including the Bank of Slovenia and its staff “are not protected from investigations” in pretrial proceedings. Likewise, a Slovenian association of small shareholders, representing owners of around €600 million of subordinated bonds that were bailed in as part of Slovenia’s bailout, accused the ECB president of interfering “with the independence of Slovenian authorities, prosecution, and courts.”

In part they are right: the ECB is directly interfering in the actions of Slovenian authorities, prosecution, and courts. But where they are wrong is in their belief that these institutions enjoy any kind of procedural independence when it comes to investigating the actions of Slovenia’s central bank in its bailout of the financial system. Such powers were signed away a long time ago by Slovenia’s government — and the governments of all other Eurozone member states.

The ECB and all of its affiliated national central banks are, by law, above the law of national jurisdictions and answerable only to the European Court of Justice, provided they are fulfilling the functions and responsibilities assigned to them by EU law. This is particularly true in relation to bailouts of Europe’s financial institutions, an issue that is once again on the front pages, as the financial sector of Italy readies itself for a bailout of potentially biblical proportions.

No European institution is as immune from national law as the Luxembourg-based European Stability Mechanism (ESM), which was founded on September 27, 2012, as a permanent facility within the ECB to provide bailouts to countries that are in distress. It currently has an authorized capital limit of €700 billion, though that can be expanded at any time by the board of governors, and individual Eurozone member states are “irrevocably and unconditionally” required to cough up the funds.

The institution has already provided €136.3 billion in bailout funds to three Eurozone members — Cyprus (€9bn), Greece, (€86bn) and Spain (€41.3bn) — but that amount is almost certain to increase in the coming months amidst calls from the ECB, among others, for the creation of a European TARP fund to mop up the non-performing loans clogging up the banking systems in Italy and Greece.

In one fell swoop, tens of billions of newly created digital euros will flow from Frankfurt and Luxembourg to the central banks of Italy and Greece, and from there onto the balance sheets of distressed banks throughout the two nations. With such huge sums of money flowing between institutions of questionable repute and under conditions of virtual secrecy, the potential for fraud or outright theft on either or both sides of the transactions is huge, especially given blanket immunity.

Under Article 32 of the consolidated ESM Treaty:

“The ESM, its property, funding and assets, wherever located and by whomsoever held, shall enjoy immunity from every form of judicial process except to the extent that the ESM expressly waives its immunity…”

To hammer the point home, Article 32 further states that:

“The property, funding and assets of the ESM shall, wherever located and by whomsoever held, be immune from search, requisition, confiscation, expropriation or any other form of seizure, taking or foreclosure by executive, judicial, administrative or legislative action.”

The same article also points out that the “archives of the ESM and all documents belonging to the ESM or held by it, shall be inviolable.”

It’s not just the ESM’s property, funding and assets that are inviolable; so, too, are its employees. To wit, from Article 35:

In the interest of the ESM, the Chairperson of the Board of Governors, Governors, alternate Governors, Directors, alternate Directors, as well as the Managing Director and other staff members shall be immune from legal proceedings with respect to acts performed by them in their official capacity and shall enjoy inviolability in respect of their official papers and documents.

The above clauses provide the ESM and its employees with not just complete immunity from national law, but total impunity. It’s a recipe for rampant abuse of power and white-collar criminality. In the case of the bailout of Slovenia, one of the Eurozone’s smallest economies, €257 million is alleged to have been misappropriated. That’s almost 10% of the total funds released.

Imagine how much money could be made to disappear in a bailout of Italy’s banking system!

The ECB’s clash with Slovenian authorities raises serious questions about the accumulative — and ongoing — power grab of an institution that is now arguably Europe’s most powerful. By Don Quijones, Raging Bull-Shit.

It was a perfect gift to a desperate market. All that was needed was a gentle hint that Italy’s troubled banks and their bondholders might not be hung out to dry.  Read… Look Who’s Frantically Demanding that Taxpayers Stop Italy’s Bank Meltdown

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  28 comments for “Is the ECB out of Control?

  1. Debravity says:

    Don, you are so important! What you do is vital. I can’t believe this kind of system has been so flagrantly designed to supercede sovereignty and supra-sovereignty right under the noses of the European public. It really is astonishing! Keep it up you legend! I wouldn’t miss a single article! More so you than even wolf (I’m sorry to draw comparisons wolf but it isn’t by much and you both make me howl with laughter as I shudder inside)

    • Wolf Richter says:

      Thanks, Debravity. You just made my day. I’m glad you like DQ’s work, and I’m very proud to have DQ on board with me.

      • Karl McGaugh says:

        Thanks Debravity. The EU is a scam to rob the taxpayers of their wealth and deposit it into the secret accounts of the uber rich. They are like spiders catching flies in their web. I am beginning to think that democracy and representative government can never work with a centralized system of money. Legal tender laws are a license for government to steal the wealth of it’s citizens and fractional reserve banking is a system to steal the wealth of the government and the people at the same time. Both need to be outlawed. The local pawn shop is the bank of the people.

        • Paulo says:

          I could not believe this. Will send this on to my French neighbours who seem to be big supporters of the EU. They have lived in Canada for 45 years, but kept their French citizenship….God only knows why?

    • Don Quijones says:

      Thank you, Debravity, for your very kind words. You made my day too!

    • nick kelly says:

      While DQ and I have disagreed on some stuff his EU and Latin American coverage has been a real eye opener.
      I think it may be Italy that busts Draghi – but he has fought hard.
      Did you guys see that graffiti with Draghi and Merkel?
      Draghi as a casino high roller!

      • nick kelly says:

        The one that first left me shocked was DQ’s coverage of that Spanish based energy company Abendoga (or something) that went bankrupt after looting the South American operations.
        It had been blessed by a world class accounting outfit just a short time before.
        Then it turns out that a first year MBA kid had done his paper on the company- his conclusion- it will go bankrupt!
        And now he’s quit MBA to go into medicine!
        The world of finance has lost its Leonardo

  2. Toddy says:

    Holy crap I never knew how airtight this actually was. Like most people I never bothered to look this stuff up in depth.

    Although I’m fully aware that banking as an industry is wrought with systematic abuse and corruption, I used to think that nation states had some powers over even the ECB.

    Learning about the ESM and it’s carte blanche legal construct, I am aghast. This stuff needs to become front page news in this election cycle. Folks gotta learn about things of this sort.

    • nhz says:

      Not only that, but in addition ECB board members (and probably some others high up in the hierarchy of the mob) have special arrangements for themselves and their families to be granted permanent citizenship for Switzerland without any extradition possibilities. They aren’t just above national and EU law, they are above any international law.

      You can be sure they are cooking up some unimaginable crimes against EU citizens if they make such detailed arrangements …

      The ECB is one of the biggest terrorist organizations in the world, only second to their masters who run Wall Street and Washington DC.

      BTW front page in election cycle, of what use would that be? We know how referenda and elections work in Europe, they are ignored if inconvenient to the Eurocrats or manipulated in such a way that the status quo continues.

    • Thomas Malthus says:

      Money = Power.

      The power to print the wold’s reserve currency = absolute power.

      The Fed is a private company.

      The owners of the Fed run the world. Other central banks dance to their tune.

  3. nick kelly says:

    Let’s pool our money and buy a euro bank- there’s got to be a small one.
    We’ll get an Italian bank to lend us the money after our .0001 deposit and then we can do this stuff.

    To be serious- Draghi sounds very upset- the kind that goes with embarrassment.

  4. Gregg Armstrong says:

    The Slovakian authorities acted outrageously by raiding their central bank! Central banks must be inviolable and absolutely immune from investigation and especially prosecution. Otherwise how can Goldman Sachs, Goldman Sachs alumni central bankers and their cronies loot the taxpayers? If this continues they are liable to find the € billions that Mario Draghi has embezzled and squirreled away in Switzerland, the Cayman Islands, Panama and the United States of America. Why, they might even stumble upon the pile of $ billions that Alan Greenspan and Benjamin Shalom Bernanke looted from American taxpayers! The Slovakian authorities are definitely not playing along with their Western ‘law enforcement’ counterparts who routinely practice, “See no evil, hear no evil, speak no evil” like US FBI Director James “Hillary’s Homey” Comey.

    • Dan Romig says:

      As a reminder (again):
      The current Attorney General of the USA, Loretta Lynch, sat on the Board of Directors of the Federal Reserve’s Bank of New York from 2003 to 2005 under the then Bank President Tim Geithner.

      Ask Jamie Dimon and JPMorgan Chase how it feels to commit felony after felony, and to have Holder and Lynch slap fines on the bank without ANY criminal prosecutions being brought against those who committed the crimes.

      Dimon also sat on the Board of Directors of the Federal Reserve’s Bank of New York.

  5. d'Cynic says:

    D.Q., you could have mentioned that countries that are not members of the Euro, are not off the hook, either. Case in point, Hungary, whose government tried to rein in the vaunted independence of her central bank, got a strict censure from the EU aristocracy.
    How dare a country’s central bank respond to the country’s government.

  6. Steve M says:

    Cheers to the Slovenians!

    Trump’s wife is Slovenian. I hope some of that rubs off on him.

    On the other hand, i’m not counting on a lot of things to avoid disillusionment.

    • Vespa P200E says:

      Drove thru Slovenia on the way to Venice from Budapest 3 years ago. It seemed like rather sleepy and quaint country.

      That said this is probably tip of iceberg and this kind of shenanigans is happening all over the 2nd tier EU countries and especially ex-communist and broken old Yugoslavia.

      • Mark says:

        Yugoslavia was country no country in the world will ever be.
        Top notch free education, free health, free apartment, one month vacation, work guaranteed for life, retirement at 55 years of age etc. with 8.75% GDP increase year over year for two decades and anything else you could never imagine. If country stayed together they would be more influential and powerful than the rest of Europe today.
        Thanks to Slovenia who started disintegration and today is armpit of Europe country fell apart.
        All former Yugoslavian republics today are no more than third world countries with tribal presidents who are pushing states towards new war.

  7. MC says:

    Personally I am convinced the ECB’s complete lack of accountability and its members’ obsessive insistence upon immunity will be its undoing, well before its own monetary policies.

    One of the chief reasons euroskeptic parties such as Italy’s M5S are making such headways is the post-2008 principle that as long as one backs the “right horse” (read: the EU project), he’s completely immune from all forms of accountability, even harmless ones such as being driven from office and into a golden retirement.
    Offering a head on a platter to the peasantry has long been a sure way to defuse tensions and avoid protest movements from gaining too much traction. It’s a lesson the Bourbon’s had forgotten by the 1750’s and it’s a lesson modern “elites” refuse to learn.
    Look at Spain, which WS covers often and in detail. When it’s the last time her government offered a head to the local peasantry, in form of a high ranking politician and/or banking official being thrown in jail? That’s why Podemos has been able to make such headways and why Rajoy and his EU enablers had to spend so much money to buy the embattled Spanish PM another term as “caretaker”.
    Or look at Italy, where accountability only exists in the dictionary. M5S, which promises to end all forms of accountability, even for EMS officials and Goldman-Sachs alumni moonlightining as senators, is making the ex-Communists ruling the country shake in their boots.

    The most wise rulers of the Middle Ages had no problems sacrificing some crown official or high ranking nobleman to keep the peasantry and small gentry from open rebellion and avoid the fate of King Edward II. A high profile trial followed by either golden imprisonment or a swift blow from the executioner’s sword could save the ruler a lot of troubles.

  8. Slovenian says:

    This Slovenian probe is not such a good example. Slovenia is a state capture, owned by ex communist mafia (a bit like Russia) and state owned Nova ljubljanska banka (NLB) is their main money laundering agent. The owners of subordinate bonds were mainly their members and those bonds were a way to extract some (taxpayer) money out of NLB. General prosecutor Fišer as an ex communist is also one of their main members.

    NLB as the biggest Slovenian bank is under direct ECB supervision, so they couldn’t avoid this ‘unpleasant’ scenario (though they’re still trying to reverse it). On the other hand the same team (Mramor included) recently ‘liquidated’ 2 small regional banks (nut under ECB supervision) which will cost Slovenian taxpayers about €1.2 bln. You can guess by yourself, who was the main beneficiary in this operation.

  9. Steven B Smith says:


    “in their official capacity ”

    Fraud is NOT in their official capacity, there is no immunity for fraud.

  10. Tom says:

    You can download the full ESM treaty text here:

  11. Petunia says:

    Now I have a better idea what Hillary and Goldman were discussing in their private talks.

  12. Chris from Dallas says:

    T.P.P. probably has these same rigged rules.

    Saw a great billboard driving from Dallas to Houston today. Obviously done by the businessman / landowner =

    “Business people do not work hard and build things so politicians can steal them. Vote Trump”

  13. Sound of the Suburbs says:

    Above the law and incompetent too.

    With Mario’s austerity destroying the economies and banking systems of the Club-Med nations the end of the Euro doesn’t look far off.

    Japan spent twenty five years in a balance sheet recession and it learnt a lot.

    They found out what to do:

    You need fiscal stimulus, monetary stimulus doesn’t work and austerity makes them worse.

    Who’s a silly old Mario?

    Bernanke and Yellen know as they read Richard Koo’s book and stopped the US going over the fiscal cliff.

    When they have their chin wags at the BIS you would have thought they would let Mario know he is destroying the Euro-zone.

    Perhaps, they just concentrate on the important things like stuffing their faces with lobster and caviar and getting out of their heads on the most expensive champagne.

    • nick kelly says:

      If the ECB has been doing austerity, I wonder what stimulus would look like?

  14. Marco Saba says:

    Seigniorage: The Honest Government’s Guide to the Revenue from the Creation of Money

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