by ECB Watch
The Economic and Monetary Affairs (ECON) Committee was in charge of evaluating Mario Draghi’s credentials on behalf of the European Parliament. The view of the Committee, and accompanying evidence, was described in a 36 pages report released on 16 June 2011 just before the vote on the nomination by MEPs. It concluded to
a favourable opinion to appoint Mario Draghi (pictured) as President of the ECB. Then 75% of the MEPs approved, resulting in
his appointment for a term of office of eight years with effect from 1 November 2011 by the European Council. The report made no mention of the strong reservations within the Committee about his alleged role in the falsification of Greek debt. This points a possible ethical failure by ECON Committee in handling the nomination process.
The contentious transactions were engineered by Goldman Sachs International in 2001. They were subsequently managed while Mario Draghi held the position of vice chairman and managing director of the bank’s London branch (European headquarters), and a member of the firm-wide management committee, from 2002 to 2005. In particular, a significant increase in the debt hiding scheme, engineered in 2005, has yet to be addressed in relation with this nomination.
The report made no mention of the strong reservations within the Committee about his alleged role in the falsification of Greek debt. This points a possible ethical failure by ECON Committee in handling the nomination process.
Reservations within the ECON Committee
Questions about Mario Draghi’s connection to the controversial deal were raised in an influential financial blog, The Baseline Scenario, in three posts spanning February-March 2010. Two members of the ECON Committee jointly wrote a solemn appeal, published in newspaper Le Monde on 14 June 2011, for Mario Draghi to clear his name. The first is the former Chair of the Committee, Pervenche Berès. The second is Pascal Canfin, who reiterated the call directly to Mario Draghi during a hearing held on 15 June 2011, in the presence of Sharon Bowles, the current Chair of the Committee. Mario Draghi’s reply was strikingly incoherent in substance and defiant in tone. In a webcast interview with the EU Parliament’s TV, the next day (15 June 2011), Pascal Canfin warned of the sword of Damoclès hovering over the head of the president of the ECB for not clearing his name.
Mario Draghi’s explanation, during the hearing held on 15 June 2011, rested on two arguments. The first argument was that, since the contentious transaction was initiated in 2001, the year preceding his hiring by Goldman Sachs, it follows that he had no connection to them. First, the contracts were in effect during the time he held a top position at Goldman Sachs. That’s not neutral given the alleged fraudulent nature of these contracts, particularly as the bank remained lead manager of Greek debt underwriting. Second, a renegotiation took place in August 2005, increasing the scale of the window dressing scheme from 2.830 bn euros in 2001 to 5.125 bn euros in 2006. This is to be found in Eurostat’s Methodological Visit Report of November 2010 on page 19 under
All the appropriate corrections have now been implemented in the EDP notification released on 15 November 2010. It represents an 81% increase in the debt hidden under this scheme. This particular information did not surface at the hearing.
Mario Draghi’s reply was strikingly incoherent in substance and defiant in tone. In a webcast interview with the EU Parliament’s TV, the next day (15 June 2011), Pascal Canfin warned of the sword of Damoclès hovering over the head of the president of the ECB for not clearing his name.
His second argument is that he did not interact with governments because he had no taste for it. How could anyone have believed that Goldman Sachs could dispense with Mario Draghi’s most valued asset? In fact, the bank communicated otherwise and so did Bloomberg on 29 December 2005, just before he took office at the Central Bank of Italy.
Evidence of Mario Draghi’s specific dealings with governments was revealed in October 2011. Pascal Canfin comments this post-hearing finding in a webcast whose title translates to
Mario Draghi lied to the EU parliament. He interprets Mario Draghi’s attitude in tactical terms: facing the problem head on might have dragged him to a deeper controversy, so he chose to use a smokescreen. He says that a person who is custodian of the truth could blackmail the ECB President and potentially destabilize the institution.
Sharon Bowles’ communication to MEPs
The report submitted by Sharon Bowles to the European Parliament just before the vote only mentions the hearing in name:
whereas the committee subsequently held a two-and-a-half-hour hearing with the nominee on 14 June 2011. In addition, the ECON Committee issued a press release on 15 June 2011. That’s for anyone who wishes to read it, unlike the report that was specifically addressed to Parliament. It does acknowledge the reservations, but they are dismissed as follows:
A few MEPs asked Mr. Draghi about his past involvement with Goldman Sachs and whether this could negatively affect his perceived integrity as ECB president. Mr Draghi vehemently defended himself, saying that he was not involved in the bank’s work with governments and that his track record since then in clamping down on the banking sector and warning about the build up of risk proved that he would not be in the pocket of the financial industry.
Notice that what was controversial about his past at Goldman Sachs, the falsification of Greek debt figures, is left out of this paragraph. His claim that he was not involved in the bank’s work with governments, in fact, confirms the perceived shortfall of his integrity, because it is contradicted by evidence and it is not plausible. Not the other way around, as the press release assumes.
“Mario Draghi lied to the EU parliament.” (Pascal Canfin)
On 23 June 2011, Sharon Bowles released a personal endorsement in which she said:
I was impressed by the answers he gave to my committee […] Many other answers were also interesting and thought provoking. He has the respect of the committee and of Parliament […].
The Parliament may well have had the respect of Mario Draghi, but on the basis of an incomplete report, which casts a sobering light on the nomination process. An MEP who wanted to find out more would have probably looked in the ECON Committee’s webpage and stumbled upon the press release. The latter presents Mario Draghi’s defense as if it had appeased initial reservations: the contrary of what actually happened.
Political and media indifference
The whitewash was most likely motivated by the desire for the nomination go as smoothly as possible. The scheme worked out marvelously well.
There were only but a few skirmishes, in the realm of politics, that specifically addressed the red flag waved in Mario Draghi’s hearing. For example, on 23 June 2011, the french Secretary of Trade Pierre Lellouche very obviously dodged a question about it, in a debate at the French National Assembly. Incidentally, a written parliamentary question on a related topic, dated 19 July 2001, addressed to the French MOF, François Baroin, remains unanswered.
No major newspaper worried about his alleged perjury, until a very short time before he took office on 1 November 2011. The NY Times gave a faithful account of the hearing on 29 October 2011. Further proof of Mario Draghi’s incorrect account of his service at Goldman Sachs, documents from the Bank of Italy, was reported on 24 October by Tiempo de hoy. By and large, however, it has gone unnoticed.
His [Draghi’s] claim that he was not involved in the bank’s work with governments, in fact, confirms the perceived shortfall of his integrity, because it is contradicted by evidence and it is not plausible.
Hypotheses about the nomination process
We can get a sense of the mood that prevailed among MEPs by reading some of their explanations of votes, on 23 June 2011, under
Report: Sharon Bowles (A7-0229/2011). Be advised that this a small sample of the MEPs. Take, for instance, Alfredo Pallone, who sits on the ECON Committee. His explanation of vote contains lofty rhetoric in praise of Mario Draghi. Of those who explained their vote, it seems that only ECON members referred to the hearing. Their account of it is rather flattering considering the red flag waved in the hearing. Did Sharon Bowles set the right tone to impress a modicum of impartiality in their minds?
We can only speculate as to Sharon Bowles’ motives. The Council, among which Nicolas Sarkozy and Angela Merkel, unanimously recommended Mario Draghi. In the context of a deteriorating Euro crisis, it would have been a public disservice to allow disharmony to take root in the nomination process. But then, what is the point of consulting MEPs on a nomination?
Under the counter-factual—giving MEPs untainted evidence, the controversy about the falsification of Greek public finance might have reignited. This would have irked some constituencies, governmental and corporate alike, who, perhaps, have turned a blind eye to the problem or bear some responsibility thereof. Avoiding a backlash might have entered Sharon Bowles’ calculation. It’s not a crazy hypothesis, but there is no data to substantiate it.
We already knew that the ECB nomination process was controversial. The first president, Wim Duisemberg, bowed to Jacques Chirac insistence that he step down midway through his mandate, in order for Jean Claude Trichet to replace him. The plan, however, was delayed by the interested party’s fraud trial in connection with the collapse of French bank Crédit Lyonnais. Through no fault of the ECON Committee, we assume. Not anymore, in this new nomination. The ECON Committee used political tactics to remove the hurdles to Mario Draghi’s nomination, in relation with his past at Goldman Sachs.
* Professor Mario Draghi joins Goldman Sachs (press release), Goldman Sachs, 28 January 2002
* Italy names Mario Draghi governor of Central Bank, Bloomberg, 29 December 2005
* Simon Johnson, Fallout from Goldman Sachs-Greece affair widens : impact on the European Central Bank, The Baseline Scenario, 15 February 2010
* James Kwak, Bank of Italy defends Draghi, The Baseline Scenario, 19 February 2010
* Simon Johnson, Mario Draghi and Goldman Sachs, again, The Baseline Scenario, 17 March 2010
* EU passes historic agreement on bank supervision, EurActiv, 24 September 2010
* Report on the EDP methodological visits to Greece, Eurostat, November 2010
* Council recommends the nomination of Mario Draghi as President of the ECB, Council of the European Union, 17 May 2011
* Pervenche Berès and Pascal Canfin, BCE: Mario Draghi doit lever des doutes, Le Monde, 14 June 2011
Mario Draghi didn’t convince me—Pascal Canfin, MEP, 15 June 2011, EuroparlTV
* Sharon Bowles, Mario Draghi recommended as candidate for next ECB President, Committee on Economic and Monetary Affairs, 15 June 2011
* Sharon Bowles, Report on the on the Council recommendation for appointment of the President of the European Central Bank, Committee on Economic and Monetary Affairs, 16 June 2011
* Sharon Bowles MEP backs
Super Mario Draghi for European Central Bank President (press release), sharonbowles.org.uk, 23 June 2011
* Explanations of votes, European Parliament, 23 June 2011
* Question au gouvernement N°3403 (debate), Journal Officiel de l’Assemblée Nationale, 23 June 2011
* European Council appoints Mario Draghi President of the ECB (press release), European Council, 24 June 2011
* Question écrite Nº114970, Journal Officiel de l’Assemblée Nationale, 19 July 2011
* Stefano Marchi, El nuevo hombre fuerte del euro : Mario Draghi, Tiempo de hoy, 24 October 2011
* Mario Draghi a menti aux eurodéputés (webcast), Europe Ecologie, 28 Octobre 2011
* Can Super Mario save the day for Europe, NY Times, 29 October 2011