February 15th, 2012
in Op Ed
by Guest Author, ECB Watch
Columbia University professor and Nobel Laureate Joseph Stiglitz (pictured) has an interesting article at Project Syndicate, Capturing the ECB, and here's an excerpt:
By insisting on its voluntariness [of a Greek default ...] the ECB may be putting the interests of the few banks that have written credit-default swaps before those of Greece, Europe’s taxpayers, and creditors who acted prudently and bought insurance. The final oddity of the ECB’s stance concerns democratic governance. Deciding whether a credit event has occurred is left to a secret committee of the International Swaps and Derivatives Association, an industry group that has a vested interest in the outcome.
It's never too late to try to read into Mr Draghi's mind. After all, he will be around for eight years. But Stiglitz' deductions to arrive at the above conjecture aren't even necessary. It was made known by the ECB president himself in the nomination hearing held in June 2011.
Follow up:Unfortunately, the previous link to the full transcript of the hearing is dead and a Google search proved unsuccessful1. But we have indirect evidence. The NY Times noted his opposition to a Greek restructuring at the time and MEP Pascal Canfin reported in an interview (at around 2:00) that this was to protect American banks that sold insurance against a default; a position that the MEP judged inadmissible2. It only stands to reason, then, that, since restructuring can no longer be avoided, the voluntary option is now Draghi's favorite.
Jean-Claude Trichet recently justified the ECB's position as follows:
traders would be encouraged to bet against indebted nations and worsen the crisis. The ban on naked purchases of credit default insurance, in Europe, will be effective November 2012. But if that really was such a problem, an executive order to that effect could be used, until the new law is effective, couldn't it? J-C Trichet took the bold step in 2011 of vetoing a legal proceeding by Bloomberg vis a vis the EU's General Court, for the ECB to release details about the 2001 (and, it turns out, 2005) contentious Goldman/Greek currency swap. The alleged reason? Preventing market risk, literally. You've guessed it: double standards to the extreme.
Mr Stiglitz ends with this general assessment:
The ECB’s behavior should not be surprising: as we have seen elsewhere, institutions that are not democratically accountable tend to be captured by special interests. That was true before 2008; unfortunately for Europe – and for the global economy – the problem has not been adequately addressed since then.
34. Would you be in favour of a confirmation procedure [as opposed to just a consultation] by the European Parliament (notwithstanding the constitutional issues that such a change would raise)?
The European Parliament has in recent years gained a wide range of far reaching competences [...alotta dull comments to avoid getting to the point too quickly...] I therefore do not see the need for changes to the current procedure, considering the outcomes that the procedure has obtained.
This was my first experience of democratic accountability, and it was one of the greatest learning experiences I have ever had.Perhaps that's because he wasn't challenged enough. That should have been the whole point of the exercise (the hearing). But, at least, we're glad thatsome are putting two and two together.
- and the ECON Committee's press office has ignored our requests for documentation in the past, unlike their homologue in the UK, so no need to bother trying again...
- The other reservation expressed in the interview was his unconvincing answer to his question about his alleged implication the falsification of Greek debt, a topic coveredhere.
Recent coverage of related issues:
- Goldman swap shows Greece was Europe's sub prime nation, NickDunbar, January 2012
- Monti says Italy seeks to set good example on swaps transparency, Bloomberg, February 2012,
There are other member states who have notified swaps in their debt reporting in addition to Greece, said the director general of Eurostat.