EBZ eta haren independentziaz

Bill Mitchell-en The sham of ECB independence1

(i) Sarrera: EBZ independentea da2

(ii) Baina…, independentzia itxurazkoa da…, finantza erakunde erraldoien menpekoa izanik3

(iii) EBZk bere arauak apurtzen ditu 2010ko maiatzetik, bonoak erosiz4

(iv) Errealitatea: EBZk gobernu defizitak finantzatzen ditu5

(v) CEO Ikuskariaren txostena6

This is the front cover of the Corporate Europe Observatory (CEO) Report – it is very stark.

(vi) Txostenaren analisi bat7

(vii) CEO delakoaren txostenaren puntu adierazgarri batzuk8

(viii) Afera nagusia: gizarte zibila, interes publikoa eta sektore pribatua9

(ix) Finantza erakunde erraldoien menpe ote dago EBZ?10

This graphic taken from the Report shows the Top 10 seats (held by 16 financial companies) on the advisory groups.

(x) CEO txostena eta EBZren erabakitze prozesua11

(xi) Gardentasun kontuaz ere, gaizki12

Ondorioak

(1) “La BCE est indépendante de tous sauf du monde de la finance”

As the French Mediapart story concludes “La BCE est indépendante de tous sauf du monde de la finance” – the ECB is independent of all but the financial sector!

That should not surprise us.

(2) EBZ aberatsen aldekoa da eta hiritar arrunten ongizatearen aurkakoa

The ECB has consistently operated to advance the interest of the wealthy and at the same time has been party (via the Troika) to the destruction of the well-being of the ordinary citizens of the Eurozone.

(3) Aditu taldeak korporazio sektorearen menpekoak dira

Its expert groups are dominated by the corporate sector – in particular, banks – which the CEO Report describes as being “outrageous”.

(4) ENZ ez dauka inongo interesik trebetasun akademiko independentearek lan egitekp

The ECB “shows no concern for other interest groups in society, and seems utterly uninterested in getting independent academic expertise involved”.

Who would want to be part of this type of system?


Ikus http://bilbo.economicoutlook.net/blog/?p=37150.

2 Ingelesez: “One of the major claims the founders of the EMU made was that by creating an independent ECB – by which they meant ‘independent’ of the influence from the Member States or other EU bodies (such as the Eurogroup) – they were laying the foundations of financial stability and disciplining the fiscal policy of the Member States. This so-called independence was embodied in the – Treaty on the Functioning of the European Union – where Article 123 prevents the ECB from giving “overdraft facilities or any other type of credit facility” to the Member State governments (and other EU bodies); Article 124 prohibits any Member State government (and other EU bodies) from having “privileged access” to the financial institutions; and Article 125 prohibits the ECB from assuming any liabilities or “commitments” of the Member State governments (etc) – the famous ‘no bailout’ clause.

3 Ingelesez: “But a recent report from the Corporate Europe Observatory (CEO) – Open doors for forces of finance – (published October 3, 2017) – suggests that the ECB feigns independence and is in fact captive of the largest profit-seeking financial institutions that sit on its advisory groups. In other words, the ECB has become a vehicle to advance private return and avoid regulative imposts when the TFEU outlines an entirely different role for the bank.”

Ingelesez: “I have regularly noted that the ECB has, in fact, been violating the no bailout clause since May 2010 when it introduced the Securities Market Program, which involved it buying the bonds of many distressed Member State governments in order to bring down yields that had started to increase (dramatically in some cases).

It is also a fact that the only reason the Eurozone has survived and none of the 19 Member State governments have become insolvent is because the ECB has continued to systematically break the law as set out in the Articles of the TFEU noted in the Introduction.

Sure enough, the defenders of the system claim that Article 125 does not prohibit the ECB from buying Member State debt in the secondary market (once it has been issued).”

Ingelesez: “But the reality is that the buyers of the debt in the primary issue market know full well that they can then onsell to the ECB at a higher price than they paid, which amounts to the same thing as the ECB funding the government deficits.

The charade is that the ECB is just buying massive amounts of government debt as a liquidity operation. But the amounts of government debt needed for these purposes are minuscule compared to the expansion of the ECB’s balance sheet since May 2010.

It is quite clear to any dispassionate observer what is going on and rather comical to hear and read the ECB pretending otherwise.”

Ingelesez: “But the Corporate Europe Observatory (CEO) report raises a separate and no less disturbing feature of ECB operations.”

Ingelesez: “There was also a very detailed analysis of the CEO Report in the French independent news service Mediapart (October 18, 2017) – La BCE «capturée» par le monde financier, accuse une ONG (“NGO accused ECB of being captured by private financial sector”).

If you read French, it is an excellent account of the problem.

It tells us that the:

ECB is arguably the most powerful institution in the euro zone. Its decisions have an impact on the lives of more than 400 million Europeans. Of course, there is its monetary policy, and all its consequences on the economy. But in the wake of the financial crisis, it has expanded its role far beyond its primary mission: to ensure price stability. The change was surreptitious, without anyone really appreciating the measure of the immense political powers now attributed to it. The ECB became a permanent member of the Troika and the European Stability Mechanism, deciding the austerity policies of European countries in difficulty. It is also responsible for ensuring the supervision of the European banking system, with the right to life and death over the banks and thus the depositors’ money. It is also the arena for financial regulation in Europe, which is Europe’s voice in international fora on all regulatory issues.

The ECB’s power is disturbing in the sense that its decision makers are unelected and largely unaccountable. It does have to provide reports to the European Parliament but it mostly does what it likes.

Which brings us to examining what ‘it’ means?

Ingelesez: “That is what the CEO Report brings into the spotlight.

The CEO Report says that:

It matters how the European Central Bank (ECB) makes its decisions, and it matters who it considers its experts and advisors. Especially if those advisors bear all the traits of lobbyists for the financial sector, and not least when the ECB is becoming a more and more powerful institution … Yet an incredible two thirds of the banks and financial entities under ECB supervision hold 346 seats in its own advisory groups, and this is just the tip of the iceberg when it comes to conflicts of interest between the role of the ECB and those whom it chooses to advise it.

The CEO Report also observed that:

There is an intense and troubling traffic in and out of the doors of the building in Frankfurt, of representatives from the biggest financial corporations in Europe, on their way to and from meetings with the ECB leadership …

the ECB has undertaken no reforms whatsoever. The ECB seems to live in its own bubble, setting its own low standards on key ethical issues. We argue that situation is not sustainable and needs to be addressed.”

Ingelesez:The major issue that the CEO Report highlights is the 22 “advisory groups” that the ECB maintains. They have “517 representatives from 144 different entities: either corporations, companies or associations, mainly trade associations.”

According the ECB, these groups help it to “discharge its mandate” and “explain its policy decisions to citizens”.

The ECB claims they access these ‘indepedendent specialists” in order “to maintain the necessary dialogue with representative associations and civil society”.

The CEO Report notes that the idea of external consultatation is unproblematic but they question the ECB’s construction of “civil society”:

Would anyone be against engagement with the public per se? Hardly. But the message from the ECB is misleading if we agree that “civil society” implies a variety of interests, some economic, some non-economic, some with links to companies and corporations, some that represent other interests. When looking at the advisory groups of the ECB, it quickly becomes clear that the composition of these groups are not representative of the public, and digging a bit deeper, reveals no attempt is made to ensure representation of interests outside the private financial sector, nor is the ECB interested in gathering inspiration from independent academics. All groups but one are completely dominated by financial corporations, and the number of seats taken by the private nancial sector is an astonishing 98 per cent (508 out of 517).”

10 Ingelesez: “Does this mean the ECB is captive of the big financial institutions?

The CEO concludes that the way that the ECB has handled some “financial scandals and serious reform proposals” suggests it has been captured by these lobbyists.

The ECB has ignored the criticism that it is being advised by the very sector it helps to regulate.

(Ikus irudia)

The CEO Report concludes “that the ECB is making no attempt to secure participation from groups outside the private financial community”.

We learn that these advisory groups are not intended to have “expertise” – they are constructed to represent “seniority” and the interests of the firms involved.”

11 Ingelesez: “The CEO Report provides several examples of how these groups have captured ECB decision making.

1. Financial Transactions Tax – where the ECB took a soft line.

2. The Libor Scandal – where the ECB promote self-regulation – the crooks regulating the crooks.

3. Foreign Exchange Scandal – “world’s biggest banks were manipulating currency exchange rates in order to make a solid profit from clients” – the ECB created the “Foreign Exchange Contact Group to handle the European side of the scandal and develop an action plan” but stacked it with representatives from the “banks involved in the scandal”.

4. Banking supervision – “The advisory groups indicate a very close interaction between supervised corporations and the ECB, and absolutely no arms-length principle is applied in that regard.”

5. Asset purchases – the QE program has delivered “billions of euros” into the hands of the institutions represented on the Advisory Groups.

In the case of the latter, the CEO Report provides a little case study about Volkswagen:

Volkswagen and Ford joined a working group in 2010 to help develop a template for reporting on car loans, in order to increase transparency and improve risk assessment. In the following years, Volkswagen enjoyed the support of the ECB for its financial arm, including through ECB purchases of ‘auto ABS’, securities backed by auto loans. So, first the ECB allows VW to help standardise its financial products, then it buys the same products on markets. These purchases were so extensive that it became a liability for the ECB when the Dieselgate scandal broke – with the discovery of fraudulent software in Volkswagen vehicles to hide the scale of vehicle emissions.”

12 Ingelesez: “The CEO Report also concludes that the ECB demonstrates “No broad commitment to transparency”.

The European Commission’s Transparency Register was established because in the ECs own words:

Citizens can, and indeed should, expect the EU decision-making process to be as transparent and open as possible.

However, the ECB “is not formally involved in the register” and has adopted none of the procedures laid out by the Register. A large proportion of the “experts involved in its groups … are not registered”.

Further the ECB does not recruit members of its advisory groups “in an open, inclusive manner”.”

Iruzkinak (1)

  • joseba

    Wolfgang Schäuble joan da, haren desastrezko legatua ez

    Bill Mitchell-en Wolfgang Schäuble is gone but his disastrous legacy will continue
    (http://bilbo.economicoutlook.net/blog/?p=37106)

    … despite him claiming the monetary union has been successful, the fact is that the Eurozone is still together only because the ECB has been effectively violating the no bailout articles of the Treaty of Lisbon via its various quantitative easing programs since May 2010. Should it stayed within the ‘law’ of the union, then several nations would have been forced into insolvency between 2010 and 2012. The problem is that while Schäuble is now gone from the political stage, his disastrous legacy will continue.
    He recorded an interview with the Financial Times (October 9, 2017) – Transcript: Wolfgang Schäuble bids farewell to the eurogroup – where he reflected on his contribution to the Eurogroup (Eurozone finance ministers), the central economic policy unit of the European Commission.
    It was an incredible interview and confirms the view that Schäuble’s goals were quite different to those who might seek to promote general advancement of well-being.
    He was asked what he was “most proud of” as a member of the Eurogroup and replied:
    I’m very happy that we succeeded … in making the euro more stable than many would have believed possible … I think that shows that we pursued adequate and successful policies.
    But fails to mention that the only reason the Eurozone is still together is that the ECB has been effectively violating the no bailout articles of the Treaty of Lisbon via its various quantitative easing programs since May 2010.
    While the ECB claims these operations were just liquidity operations (reserve maintenance) the reality is quite different. They might only be buying government bonds in the secondary market but the impact is the same as if they were just buying the debt in the primary issuance stage.
    So “we” didn’t succeed. The continuation of the euro is only down to the central bank breaking the law. Without that breach, it would have been curtains, at least for several of the nations (Italy and Spain to name notable examples).
    (…)
    A properly functioning federation with democratic accountability has to follow three design principles:
    1. Fiscal policy (spending and taxation) should be aligned at the federal level with the currency-issuance (central bank) functions. This means that the ‘federal government’ can ensure that asymmetric spending shocks to the federation (that is, which impact differentially on the ‘regions’ within the federation) can be attenuated with appropriate fiscal transfers.
    2. The use of the term ‘federal government’ is pertinent – the fiscal agency has to be the responsibility and under the control of elected politicians rather than unaccountable technocrats.
    3. The ‘states’ within the federation can have their own fiscal functions according to their own political agendas but the federal level is responsible for the general well-being of the ‘country’ (the ‘federation’). Some ‘federal-state’ arrangement has to be in place to ensure that the states don’t game the federation but, ultimately, in a crisis, the ‘federal’ government has to stand ready to ensure living standards are broadly comparable across all regions.
    Wolfgang Schäuble’s vision is quite different and explains why the Eurozone is never likely to become a functional federation.
    (…)
    He also wrote that:
    … a new fiscal capacity or unemployment insurance is economically not necessary for a stable monetary union. Countercyclical public spending is never in time …
    That is categorical.
    And this is the standard mainstream line that characters such as Milton Friedman used to disabuse the notion of activist discretionary fiscal policy – the lags are too long and so fiscal policy becomes pro-cyclical – by the time, the government gets its act together, the non-government spending has recovered and so the fiscal stimulus just overheats the economy.
    First, the fiscal rules in the Eurozone are largely pro-cyclical anyway as noted above.
    Second, the lessons of the crisis is that governments that became pragmatic and rejected the ideological antagonism to deficits found effective ways to spend money and reduce the impact of the collapse in non-government spending.
    Third, a program such as the Job Guarantee, would immediately chime in as the non-government sector contracted – people would move very quickly into paid work (which was designed in advance to be operational) rather than, as they do now, move into the unemployment queue.
    Finally, Schäuble thinks that Member States suffering “asymmetric shocks” then “better migration within the EU27 could offer a much stronger possibility to keep unemployment … under control in case of crisis.”
    It is quite clear that intra-Europe migration is insufficient despite the relaxation in rules (Shengen) to reduce the gross disparity in unemployment rates across Europe.
    What other features of the ESM tell us that Schäuble hasn’t worked out that the ‘German-view’ on Europe is dysfunctional.
    The idea that the ESM would engage in insolvency procedures immediately tells us that Schäuble has no truck with the Eurozone being a functioning monetary union.
    In fact, what he is proposing is redolent of the unworkable pre-Maastricht situation where countries with external deficits were forced to offer higher interest rates to prevent currency depreciation.
    The difference now is that the bond markets would force Member States who were struggling with fiscal deficits due to recessed domestic conditions and facing default risk to pay higher yields on any debt issued.
    While all Member States face default (credit) risk on the debt they issue because they do not issue their own currency, economies facing recession would face intolerable demands from the bond markets.
    The spiral to insolvency would then be accelerated just as the currency crises in the 1970s and 1980s were self-fulfilling because of the insistence of Member State governments in retaining unsustainable fixed parities against the powerful German mark.
    In his Financial Times interview, Schäuble said that “The euro should be the currency of the whole EU. We need to reach a point where the whole of the EU uses it.”
    However, Schäuble proposal to introduce the ESM would provide a massive disincentive to the remaining European nations to surrender their own currency and join the EMU.
    The reliance on bond markets to discipline and ultimately, force governments into insolvency is a recipe for chaos rather than convergence and stability.
    Conclusion
    It is clear that the German view – if it persists after Schäuble’s departure – maintains the strong line against any notion of debt-mutualisation and risk sharing at the ‘federal’ level.
    The ‘non-paper’ is effectively a religious statement rather than having any coherence. It just asserts that things are fine, can be slightly improved with more surveillance, tighter rules and more structural policies (aka wage and pension cuts etc).
    The inherent bias towards crisis will only be accelerated if Schäuble’s full suggestions are the way the European Commission moves.
    Schäuble leaves a terrible record in my view although the media is holding him out to be a visionary.

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