As regular readers of the column will know, I am not a fan of the European Central Bank (ECB), having previously discussed how it helped shaft us in the context of the so-called “bail-out”, insisting that people in Ireland carry the can for the dodgy debts owed to bank bondholders.
Economist Colm McCarthy has called this “a straightforward stick-up” through which “several billions have been gifted to undeserving hedge funds in London and New York under threat from unelected European officials”.
She called on ECB President Mario Draghi to resign his membership of the Group of Thirty (G30) consultative body, a grouping that includes the directors of two banks that the ECB is supposed to be supervising.
O’Reilly, upholding a complaint from the campaigning group Corporate Europe Observatory (CEO), described Draghi’s membership as constituting “maladministration”, noting – and I would argue, understating – that, “The ECB president’s membership of the G30 could give rise to a public perception that the independence of the ECB could be compromised.”
This is in the context of already close links between the ECB and the private financial sector that it is charged with regulating, what CEO describes as “a culture of secretive collusion between regulators and big banks”.
Draghi, in fact, first joined the G30 in 2005, before he took over at the ECB, while he was working for investment bankers Goldman Sachs.
Moving in the opposite direction, the former chairman of the US Federal Reserve, Ben Bernanke, now sits on the G30 in his capacity as adviser to the hedge fund Citadel.
Such revolving doors raise well-founded fears of powerful private actors exercising undue (and deeply opaque) influence over public policy.
A fascinating case study of claimed ECB-bank collusion that damaged the public interest here is provided by a report commissioned by MEP Luke “Ming” Flanagan and published last month, entitled The Eurozone Banking Crisis: Did the ECB and the Banks Collude to Hide Losses, Thus Distorting Their Own Balance Sheets?
The report’s authors – financial analysts Cormac Butler and Ed Heaphy – conclude that there is, at the very least, a case to answer, and that the Irish banks, with the tacit acceptance of the ECB through its endorsement of problematic accounting practices, consistently understated their losses.
This meant that, prior to the crisis, the ECB, contrary to its own rules, was de facto “lending to insolvent banks”.
Butler and Heaphy ask an especially pertinent question: “Does Ireland have the legal authority to repay borrowings from the ECB that were used to plug the hole created by [these] hidden losses?”
They characterize “the ECB’s policy [as one] of imposing losses of its own creation onto Ireland and other governments of equally vulnerable countries”.
Cantillon, an anonymous columnist with the Irish Times, lambasted Flanagan’s report on the grounds that “the evidence doesn’t seem to add up” – but offered no evidence of their own for this claim, other than that the report had been “damned by a number of people familiar with its context”, whoever they might happen to be.
One of those unnamed people (an “analyst”, no less) is quoted by Cantillon as advising Flanagan to “get back to the day job”. As if those whose day jobs it has been to manage the financial sector – the ECB, the banks, the auditing firms, most economists, political leaders and others – have been doing such bang-up jobs that no external commentary on (let alone criticism of) their activities is in order.
The crisis, it seems, has done little or nothing to dent the hubris of the insiders who brought the roof crashing down on the rest of us mere mortals.
Butler, co-author of the report, describes Cantillon’s response as “suggesting corrective action must be ignored – music to the ears of bankers who continue to break the law”.
Music to the ears also of the ECB, and certainly much more welcome to it than the wholly merited criticisms of Emily O’Reilly.