Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

Non à Weber!

by afew Fri Jan 21st, 2011 at 05:27:38 AM EST

Jean Quatremer asks whether the successor to Jean-Claude Trichet at the head of the ECB will be a monetarist "hawk" or a pragmatic "politician", and reminds us that, for the moment, the undeclared candidate who is generally supposed to be the favourite is the ultra-orthodox Bundesbank chairman, Axel Weber. Weber is opposed not only by ET (there was even a suggestion here that we run a "Stop Weber!" campaign), but also by Nicolas Sarkozy. "The Elysée doesn't want Weber at any price", says Quatremer, "but still hasn't found a candidate Berlin might accept as a replacement." But the new governor of the ECB is scheduled to be appointed in June, or at the very latest October.

Quatremer points out that Trichet has been criticised by both Chirac and Sarkozy for "rigidity and obsession with inflation". However, Trichet is now recognised as being more flexible - Quatremer credits him with this:

BCE: après Trichet, à qui le tour ? - Coulisses de Bruxelles, UEECB: after Trichet, whose turn? - Backstage Brussels, EU
Dans la nuit du 9 au 10 mai, pour sauver une zone euro au bord de l’explosion, le président de la BCE a convaincu le conseil des gouverneurs de jeter par-dessus bord l’un de ses dogmes et a obtenu de pouvoir racheter sur le marché secondaire, celui de la revente, les obligations d’États de la zone euro attaqués par les marchés afin de casser la spéculation et stabiliser les cours.During the night of 9 to 10 May, to save the eurozone at the brink of explosion, the chairman of the ECB convinced the governing board to throw overboard one of its dogmas, and obtained the right to buy on the secondary market (where bonds are sold on), eurozone sovereign bonds attacked by the markets, so as to break speculation's back and stabilise prices.

Quatremer also credits Trichet with the decision not to take ratings agency notation into account when eurozone bonds were offered as collateral for borrowing from the ECB. Axel Weber, (and Jürgen Stark, the ECB's German chief economist) were both opposed to these measures and got in Trichet's way time and again -- and publicly:

Le président de la Buba n’a pas hésité, dès le 11 mai, à faire connaître publiquement son désaccord avec la décision de la BCE, rompant ainsi un principe pourtant imposé par l’Allemagne lors de la négociation du traité de Maastricht, celui du secret des délibérations. Désaccord depuis répété sans relâche, Weber allant même jusqu’à plaider pour le retrait des facilités de financement accordées aux banques et pour une augmentation des taux d’intérêt…The Buba chairman didn't hesitate, 11 May, to let it be publicly known he disagreed with the ECB decision [re secondary market buying], thus breaking a rule that had all the same been imposed by Germany in the Maastricht Treaty negotiations, that of the secrecy of ECB deliberations. The disagreement has not ceased since, Weber pushing it as far as to argue for withdrawal of financing facilities extended to banks, and in favour of an increase in interest rates...


France and southern member states don't want this kind of hawk in charge of the ECB, while the Netherlands, Finland and Austria would join Germany in supporting him. The problem for Paris, says Quatremer, is to avoid open conflict between North and South, which would end in victory for the latter (since the vote on the chair of the ECB is by qualified majority of the European Council of heads of government), and humiliation for Germany. A compromise candidate needs to be found that will save Germany's face while preventing Germany from running the whole show with ultra-hawks.

Possible candidates: the Italian Mario Draghi, the German Klaus Regling (current chair of the guarantee fund EFSF), the chairman of the Bank of Finland, Erkki Liikanen. But Draghi used to work for Goldman Sachs... Regling doesn't speak French... Liikanen isn't from a "major" country...

Political candidates might also be found. Didier Reynders, Belgian finance minister for more than a decade, is a possible. Dominique Strauss-Kahn's name has also been flown, though having a Frenchman succeed a Frenchman at the ECB would be near-impossible (and would DSK want to leave the IMF for the ECB, renouncing a highly likely victory in the French presidential election of 2012?).

Yet (thinks Quatremer, and so think I), finding a candidate is vital if Weber is to be stopped. Any suggestions?

Display:
In comments on Quatremer's blog, the name of Philippe Maystadt, Belgian governor of the European Bank for Reconstruction and Development, was put forward.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jan 21st, 2011 at 05:35:32 AM EST
[ET Moderation Technology™]

Corrected your Klaus Reglung for Klaus Regling.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 06:35:12 AM EST
Right!
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jan 21st, 2011 at 07:32:26 AM EST
[ Parent ]
I found this very interesting indeed, "sterilising bond purchases" nonsense notwithstanding:

BCE: après Trichet, à qui le tour ? - Coulisses de Bruxelles, UEBCE: after Trichet, whose turn is it? - Brussels behind the scenes
Si certains doutaient encore des capacités d'adaptation de Jean-Claude Trichet, la crise de la dette souveraine leur en a fourni une illustration supplémentaire. Dans la nuit du 9 au 10 mai, pour sauver une zone euro au bord de l'explosion, le président de la BCE a convaincu le conseil des gouverneurs de jeter par-dessus bord l'un de ses dogmes et a obtenu de pouvoir racheter sur le marché secondaire, celui de la revente, les obligations d'États de la zone euro attaqués par les marchés afin de casser la spéculation et stabiliser les cours. Aujourd'hui, la BCE a acquis environ 80 milliards d'euros de dette et a dû augmenter son capital pour équilibrer son bilan. De même, quelques semaines plus tôt, la BCE avait décidé de ne plus tenir compte des notes des agences de notation pour accepter, en garantie des prêts accordés aux banques commerciales des obligations des pays de la zone euro.If certain people still doubted Trichet's capacity for adaptation, the sovereign debt crisis has provided an additional illustration of it. In the night of May 9 to 10, to save a Eurozone on the brink of explosion, the president of the ECB has convinced the coincil of governors to throw overboard one of its dogmas and has obtained the power to purchase on the secondary market, that of asset resales, the obligations of Eurozone states attacked by the markets with the aim to break speculation and stabilize the rates. Today, the ECB has purchases about 80 billion euros of debt and has had to increase its capital to right its balance. Similarly, a few weeks eralier, the ECB had dedided not to take into account the credit rating agencies' scores to accept Eurozone state debt as guarantees for loans to commercial banks.


Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 06:54:07 AM EST
See also: European Tribune - Translation: Trichet or the Single European Unthinking
Mais ce qui est encore plus frustrant que la forme de l'exercice... c'est le fond! Jean-Claude Trichet est un vrai européen, il n'y a aucun doute là dessus. Et en ces temps où les intérêts nationaux l'emportent trop souvent sur l'intérêt général européen, c'est une qualité importante!But even more frustrating than the form of the exercise is the substance! Jean-Claude Trichet is a true European, there's no doubt about that. And at this time where national interests too often trump the general European interest, it's an important quality!
Mais, pour le reste, le président de la BCE continue de dérouler les dogmes de la pensée unique comme si la crise n'avait pas eu lieu.But, otherwise, the ECB president continues to roll out the dogmas of market fundamentalism as if the crisis had never happened.
Les réformes financières? Tout va bien. L'agenda du G20 avance, pas la peine d'en faire plus. La réforme du pacte de stabilité et de croissance? La Commission ne va pas assez loin. Il faudrait des sanctions automatiques et confier la politique budgétaire à des "sages" .Financial reform? All goes well. The G20 agenda marches on, there's no point in doing more. The reform of the Growth and Stability Pact? The Commission isn't going far enought, sanctions should be automatics and budget policy should be entrusted to "wise men".
Written by French Green MEP Pascal Canfin.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 07:25:20 AM EST
Liikanen isn't from a "major" country...

This is a feature, not a bug.

The new ECB chair will come into office in the middle of the worst constitutional crisis the European Union has had since... Hell, I can't remember the any worse crisis the European Union has gone through. And all the "major" €-zone countries (except maybe - maybe - France) have a major dog in this fight. That's what makes it a serious crisis. Nobody from Germany, Greece, Ireland, Italy or Iberia could ever be seen as an honest broker, and another Frenchman wouldn't be acceptable for the reasons outlined in the diary. The UK has an opt-out, so they're obviously not in the picture.

That leaves Estonia, Slovenia, Finland, Slovakia, Austria, Belgium (who may be about to get a dog in the fight too), the Netherlands and Malta, Cypern and Luxembourg.

I think we want a Belgian of reasonable accessability of mind, because a Belgian is enough of a Good Old Boy that he should be acceptable to the Germans, but on the other hand, Belgium is about to become a graphic example of the fact that this is not a North/South conflict but a deficit/surplus conflict. The danger of backing a Belgian candidate is that Belgium might be attacked too soon, or not at all, leading him to become unacceptably partisan before his election, or to not draw the right conclusions after he is elected.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jan 21st, 2011 at 08:10:09 AM EST
Liikanen has not been good at The Bank of Finland - a lot of people have left, unable to support his MO. He has also been an EU Commissioner, member of the Governing Council of the European Central Bank (2004- ) and Governor of the International Monetary Fund for Finland (2004- ).

Sixten Korkman, the Managing Director of the Research Institute of the Finnish Economy, is the best economist we have. He might yet become the Bank of Finland Governor.

You can't be me, I'm taken

by Sven Triloqvist on Fri Jan 21st, 2011 at 08:18:21 AM EST
[ Parent ]
Finland is also one of the "hawk" countries which would back Axel Weber.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jan 21st, 2011 at 09:21:46 AM EST
[ Parent ]
Finland sure is a hawk country. However the population is starting to get more critical after the deals with Greece and Ireland, and the continuous rise of debts (also household debts). "Bank bailout" has still a bad reputation in Finland. Elections in March will probably bring big victory to the populist party, but the "serious" right wing will stay strong.

The left has no clue what do they stand for.

by kjr63 on Fri Jan 21st, 2011 at 01:49:46 PM EST
[ Parent ]
Sixten Korkman, the Managing Director of the Research Institute of the Finnish Economy,

Thanks, but no thanks. Korkman's only public comment i've seen has been the criticism of Uusipaavalniemi, the only man in the whole country who criticises banks.

by kjr63 on Fri Jan 21st, 2011 at 01:35:59 PM EST
[ Parent ]
JakeS:
Liikanen isn't from a "major" country...

This is a feature, not a bug.

In addition, afew reported that comments on Quatremer suggested a Belgian for the post...

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 08:30:27 AM EST
[ Parent ]
Belgium is one of the original six and home to a lot of EU institutions and administration, so it has extra kudos.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jan 21st, 2011 at 09:33:06 AM EST
[ Parent ]
Yes, if they get attacked by "the market" there won't be the same sneering condescension from Germany and the Netherlands as in teh case of the "PIIGS"...

Or maybe there will - blame it all on the French speakers and take the attacks as a way to apply a "good bank/bad bank" solution to Belgium, along linguistic lines...

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 09:38:40 AM EST
[ Parent ]
Van ROmpuy is Belgian. Doesn't that disqualify Belgians for the ECB?

I think it's clear Germany has been lining up its ducks by not bidding for any major EU post in the 2009- cycle.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 10:34:25 AM EST
[ Parent ]
It probably does. Which would also rule out Maystadt and Reynders.

Is Draghi totally evil for having worked for GS? Is there not a tiny parcel of good in every human being? </desperate>

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jan 21st, 2011 at 10:57:14 AM EST
[ Parent ]
There's this:
"The euro is solid," Draghi told a gathering of market operators in Naples," but he called on the EU to extend and reform its economic structures "with the same vigour it devoted over the years to consolidating government budgets."
Though everything I've seen regarding Draghi's GS ties is really wretched. And Germany resents him for being associated with the use of derivatives by Greece and other EU countries to get around the German Stupidity Pact.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 11:08:25 AM EST
[ Parent ]
Back in 2009, when governments needed to be convinced to do some stimulus, there was this:
There were even the lies contradicting the Governor of the Bank, Draghi, who had said something true, namely that there are 1,600,000 Italians who risk finding themselves completely up the creek if they lose their job, because there is no social safety net to soften the blow. Probably the number is even more than 1,600,000, but the fact that the Governor said this was already an interesting fact. Berlusconi, who was evidently asleep during Draghi's speech, as often happens, afterwards said: Draghi made an excellent Berlusconian speech. Later he found out that Draghi had said that there were 1,600,000 people who stood to lose everything while the government was doing nothing, and at that point Berlusconi says: the data are not true. Actually the data are true, and may even be underestimates.


Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 11:10:18 AM EST
[ Parent ]
This from 2007 by de Gondi:
It appears that the only revolutionary left in Italy is the head of Italian fed reserve, Mario Draghi who insists that workers be paid more.


Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 11:11:28 AM EST
[ Parent ]
With ideas like that he doesn't stand an earthly.

We're fucked.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jan 21st, 2011 at 11:23:51 AM EST
[ Parent ]
The point is that only Weber clones stand an earthly, so we're fucked in any case.

I mean, is there a German candidate we would like? Weber, Stark and Regling are obviously hawks, though it is unclear whether Regling would oppose having his EFSF give Greece a relatively cheap loan so Greece can repurchase its bonds...

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 11:33:05 AM EST
[ Parent ]
Well, even the FDP agrees: Brüderle backs big pay rises as economy booms - The Local
Workers hungry to share in the spoils of Germany's booming economy through higher wages have been given encouragement from a surprising place: the country's pro-business Economy Minister Rainer Brüderle.
Now, to talk about a "booming German economy" in October 2010 is a bit too celebratory, but still...

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 12:45:32 PM EST
[ Parent ]
They certainly have been accumulating political capital with their paucity of candidates. But they've also been pissing away political capital with their grandstanding and inflation psychosis. So their ducks are not quite in a row at this point.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jan 21st, 2011 at 11:28:40 AM EST
[ Parent ]
Reportedly, the Netherlands, Finland and Austria support Weber.

This really is about surplus vs. deficit countries, and the deficit countries have no other weapon but the nuclear option: to default.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 11:34:37 AM EST
[ Parent ]
JakeS:
I think we want a Belgian
Flemish or Walloon?

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 08:32:28 AM EST
[ Parent ]
Either Flemoon or Wallish. And bearded.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jan 21st, 2011 at 09:34:51 AM EST
[ Parent ]
Perhaps the King? After all, he is from a German family.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jan 21st, 2011 at 11:07:29 PM EST
[ Parent ]
What opinion does anyone have of Klaus Regling? His incapacity to speak French seems a minor drawback in current circumstances.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jan 21st, 2011 at 09:24:23 AM EST
[ Parent ]
He's an entirely orthodox German economist.

See this thread:

Very interesting first roundup of the year from Eurointelligence: A year of truth for the eurozone

...

Is Merkel ready to drop Axel Weber for the ECB job?

Frankfurter Allgemeine has an interesting if speculative article about why Merkel might drop Weber in the race for the ECB presidency. The theory goes like this: Merkel is getting closer to Sarkozy on the euro because Germany wants the ECB to help out where governments are constrained for political reasons  - through bond purchases, continuation of flexible lending policies, and low interest rates. For example, Germany opposes an extension of the EFSF's size and mandate, while the ECB wants governments to solve the problem. Weber might not be the most conducive candidate for a compliant ECB. The paper quotes an official close to Merkel as saying that Germany was no longer pushing for a German central banker at the top of the ECB, but for the most qualified central banker. The authors of the Herdentrieb blog predicted that Klaus Regling would get the job.

Who is Klaus Regling? Would we like him as a Central Banker?
Later in that thread:
his past experience also recommends Mr Regling for the job. The 59-year-old has spent the better part of four decades flitting between the IMF, Germany's finance ministry and Brussels. He played a key role in drawing up the Stability and Growth Pact in the 1990s while based at the German finance ministry. The pact, which was a condition Germany insisted on before agreeing to give up its precious D-mark, was intended to rein in profligacy among countries using the euro and prevent the mess that they are now in. Mr Regling then spent much of the past decade trying to enforce it as the director-general for economic and financial affairs at the European Commission.
Also this:
Yglesias: The Latvian Catastrophe
Klaus Regling, chief executive of the European Financial Stability Facility, wants you to know that monetary union without fiscal integration is workable after all and he offers, as an example, Latvia:
Latvia which has a currency pegged to the euro, testifies to the success of this policy. Contrary to commentators who predicted disaster for Latvia early last year unless it gave up its hard peg - in line with advice from the commission - it did not devalue its exchange rate. A real effective devaluation was achieved through severe cuts in nominal income. Today its economy is growing again. Those outside "experts", who always seem to know what is good for Europe, should take note.
So to be clear about this, the Latvian economy suffered a 4.2 percent contraction in 2008. By way of comparison, in the horrible year of 2009 the US economy contracted 2.44 percent. So that was a very bad recession, much worse than the American recession. At this point, so called "outside `experts'" predicted disaster for Latvia in early 2009 unless it devalued its exchange rate. Latvia declined to devalue and its GDP shrunk 18 percent! That's the disaster right there. Overall GDP growth for 2010 is forecast to be slightly negative again. So, yes, Latvia has returned the growth. But the toll was terrifyingly high.
I despair, I truly do.
He also appears here: European Tribune - The Irish Disease
The hard-hitting reports by the new Central Bank governor Patrick Honohan and international banking experts Klaus Regling and Max Watson published yesterday heavily criticised misguided government economic policies, a weak system of financial regulation and poor bank lending.


Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 09:36:42 AM EST
[ Parent ]
It would appear that just opposing Weber for the post was too low a bar. The question is not one of anyone but Weber, but, rather: is there anyone who is likely to lead the EU out of this mess as head of the ECB?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jan 21st, 2011 at 11:13:17 PM EST
[ Parent ]
One way to spin that is to oppose not Weber the person but Weber the archetype: No to Weber means No to Weber Clones.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Jan 22nd, 2011 at 03:23:42 AM EST
[ Parent ]
Bite the bullet and put forward a Spaniard? They at least have public sector rectitude on their side. Use this as an opportunity during the "campaign" to push forward the idea that in debt bubbles there are both borrowers and lenders and that more should be expected of the lenders than of the borrowers when it comes to evaluation of credit-worthiness. It would also offer the possibility to discuss the necessary role of bank regulation and how it broke down, partly, in this case, because of trans-national issues.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jan 21st, 2011 at 11:14:47 AM EST
[ Parent ]
Jaime Caruana - Wikipedia, the free encyclopedia
Jaime Caruana (born March 14, 1952) is the General Manager of the Bank for International Settlements. His five-year term began on April 1, 2009. He was also the Governor of the Bank of Spain from July 2000 to July 2006.
Caruana was the man in charge during the bubble, when Spain was running the now much celebrated countercyclical regulatory capital policy for banks.

Note the term of his current appointment.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman

by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 11:37:35 AM EST
[ Parent ]
The previous Governor of the Bank of Spain is now 76...

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 11:39:20 AM EST
[ Parent ]
Not if he was born in 1952, more like 58 or 59.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jan 21st, 2011 at 02:34:21 PM EST
[ Parent ]
I mean previous to Caruana.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 02:35:48 PM EST
[ Parent ]
Was his counter-cyclical policy derailed or overridden by "trans-national" actors?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jan 21st, 2011 at 02:36:17 PM EST
[ Parent ]
No, but it appears the European Union didn't like it...

See this Bloomberg piece.

This Spanish interview with El Economista includes the following claim:

¿Está satisfecho de que al final se hiciera lo que usted proponía, aumentar las provisiones bancarias y el control financiero?

Se hizo finalmente lo que yo decía, pero no se hizo todo. El Banco Central Europeo (BCE) bajó demasiado los tipos de interés respecto de lo que yo decía. Y el tema de las provisiones se hizo con dificultades porque a Europa no le gustaba nada lo de mejorarlas y cuando se hizo fuimos muy criticados dentro y fuera de la banca. Nunca entendí por qué no se daban cuenta de que al ritmo al que iba la economía española era fundamental que se protegiera y tuviera unas mayores provisiones. Finalmente se reforzaron y eso ha tenido unos efectos absolutamente benéficos porque somos uno de los pocos países del mundo occidental que está pasando esta etapa con una cierta tranquilidad bancaria. Nuestra banca hasta ahora se ha comportado muy bien. Unos bancos menos, pero bueno.

Are you happy that in the end what you proposed was done, to increase the banks' provisions and financial control?

In the end what I said was done, but not all of it. The ECB lowered interest rates too much with respect to what I was saying. And provisions were done with difficulty because Europe didn't like the idea of improving them and when it was done we were much criticised form within and outside banking. I never understood why they didn't realise that at the spped that the Spanish economy was going it was essential that it protect itself and have greater provisions. In the end they were reinforced and this has had absolutely beneficial effects because we're one of the few countries in the world that's going through this time with a certain banking calm. Our banks have so far behaved really well. Some less so, oh well...

The Bloomberg article explains
The Spanish model has become the prototype for so-called counter-cyclical provisioning, said Paul de Grauwe, an economics professor at the Catholic University of Leuven in Belgium. Regulators in London and Brussels are considering adopting the Spanish model as they seek ways to prevent future blow-ups.

...

"It shows how far banks have been distracted from their historically conservative mission that people are getting excited by this now," said Jonathan McMahon, a former official at the U.K. Financial Services Authority and now a director of Promontory Financial Group. "Maybe Spain just remembered what to do when other people forgot."

...

The central bank implemented the system partly to rein in lending after Spain cut borrowing costs as a precursor to the start of the euro, Rojo said. Spanish interest rates plunged to 3 percent in 1998 from as high as 9.25 percent in 1995.

...

"We tried to sell it in Europe when we did it and we weren't successful," Rojo said. "The model has worked very well for us and it should work for everyone."



Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 04:56:37 PM EST
[ Parent ]
More Rojo from Cotizalia.com in early October, 2008 (when the Paulson plan was being debated, and EU countries were falling over themselves extending deposit guarantees to forestall a bank panic)
... Rojo afirma que "de estas situaciones sólo se sale con algún tipo de actuación por parte de los Gobiernos".

Sin embargo, no le convence la nueva medida propuesta, la compra de activos bancarios por parte del Gobierno, puesto que Rojo considera que la dotación de liquidez al sistema es una competencia que "depende en gran medida del BCE". Comprar deuda... "eso lo tiene que hacer el sistema bancario, por coordinación de los Bancos Centrales a través del BCE. Los Gobiernos no se pueden poner ahora a inyectar liquidez mediante aumentos de gasto. Eso sería tremendo".

...

Francia y Alemania influyeron negativamente sobre el BCE

Para el viejo profesor, no hay dudas a la hora de repartir culpas. "Debería haber venido el impulso de contracción de EEUU, y no hicieron nada. En España yo era partidario de que la banca creciera menos, que se expandiera a unos ritmos más bajos, pero no sucedió así. ¿Es culpa de la banca? En parte sí, y de las autoridades también. Yo culpo también al Banco Central Europeo, porque  cuando inició sus actividades le dio por hacer una política expansiva tremenda impulsado por Alemania y por Francia.

Francia y Alemania estaban entonces convencidos de que lo que necesita Europa era gas porque sus dos economías lo necesitaban, y la verdad es que fue un desastre aquello. Y para países como España, Irlanda o como Portugal o como Grecia que eran países que venían de una fase de crecimiento bastante lento, pues el meterse en fase expansiva tan fuerte era peligrosísimo, pero bueno yo, en el consejo BCE lo dije hasta hartarme. Estábamos metidos en una cosa que no tenía salida. Pero en fin, como suele suceder en esos casos de expansión no me hicieron ni caso".

...

Distintos estados de gravedad y distintas medidas de actuación. ¿Dónde queda una acción coordinada de la UE? "Cada país debe arreglárselas como pueda y el conjunto pues será una cosa, un arreglo para toda Europa poco a poco. No creo que Europa esté en condiciones, por el momento, de abordar el tema de un modo conjunto. Sería bueno que el ECOFIN tuviera mayor poder, sería bueno que el BCE no tuviera las ideas que tiene y fuera una entidad con una visión más general".

... Rojo claims that "you only get out of these situations with some sort of government intervention".

However, he's not convinced by the new proposed measure, the purchase of bank assets by government, as Rojo thinks that systemic liquidity provision is a competence that "depends in great measure from the ECB". To buy debt... "must be done by the banking system, by means of Central Bank coordintion through the ECB. Governments cannot now start injecting liquidity through spending increases. That would be terrible"".

...

France and Germany had a negative influence over the ECB

For the old professor, there are no doubts when it comes to assigning blame. "The contraction impetus should have come from the USA, and they did nothing. In Spain I was for lesser banking growth, for it to expand at lower rates, but it didn't happen that way. Is it the banks' fault? Partly yes, and also the fault of the authorities. I also blame the ECB, because when it started functioning it got it in its head to carry out a tremendously expansive policy, pushed by Germany and France.

France and Germany were then convinced that what Europe needed was fuel because its two economies did, and in truth that was a disaster. And for countries such as Spain, Ireland or like Portugal or like Greece which were countries coming out of a phase of rather slow growth, getting into such a strong expansive phase was very dangerous, but well, I said it at the ECB council until I was fed up. We were in something that had no way out. But well, as it happens in these instances of expansion, they didn't listen to me".

...

Various degrees of seriousness and various policy measures. Where is a coordinated action by the EU? "Each country must cope as best it can, and the whole, an arrangement for the whole of Europe [will come] step by step. I don't think Europe is in a position, for the moment, to tackle the issue jointly. It would be good for the ECOFIN to have more power, it would be good for the ECB not to have the ideas it has and to be an institution with a more general vision".



Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 07:02:57 PM EST
[ Parent ]
Luis Angel Rojo was, in fact, the designer of the countercyclical bank provision policy.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 02:40:06 PM EST
[ Parent ]
The new ECB chair will come into office in the middle of the worst constitutional crisis the European Union has had since... Hell, I can't remember the any worse crisis the European Union has gone through.

I believe the previous constitutional crisis was the Empty Chair Crisis

President Charles de Gaulle of France favoured a protected market for France's agricultural products. In 1965 the European Commission's president, Walter Hallstein, suggested an extension of the Commission's powers and a general increase in the supranational nature of the Community. He also proposed an increase in the use of qualified majority voting in commercial matters dealt with by the Commission.

De Gaulle opposed Hallstein's proposals. De Gaulle also strongly sought a financing agreement for the Common Agricultural Policy ("CAP"). The deadline for this was approaching in 1965.

Hallstein made the political judgment that De Gaulle would not risk losing the CAP agreement and upsetting French farmers before a December 1965 presidential election. Hallstein calculated that to secure the CAP De Gaulle would compromise on the institutional questions. The other five countries refused to compromise the agenda of the meeting and wanted de Gaulle to accept the whole package.

After a tense meeting on June 28-30 1965, De Gaulle's response was to withdraw France's representative in Brussels and to boycott discussions of institutional change. This strategy led to what was called the "empty chair crisis".

The crisis was ended by the Luxembourg compromise in January 1966. It was an informal agreement stating that when a decision was subjected to qualified majority voting, the commission would postpone a decision if any member states felt that very important interests were under threat. In effect the compromise meant that Qualified Majority Voting was used far less often and unanimity became the norm. De Gaulle pushed for this measure, as it essentially gave France a veto power over any decisions, and would ensure that their interests under the Common Agricultural Policy would remain unhindered.

The incident leading to the Luxembourg compromise had deep repercussions for the EC, leading to a slowing down of integration, and move toward the "confederalist" approach favoured by de Gaulle, rather than a more federalist approach favoured by Hallstein.



Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 02:14:27 PM EST
[ Parent ]
To stop Weber I think a candidate need to be found that suits a number of informal arrangements within a circle of powerful men (and maybe one or two women) in Brussels. To see who would fit one would need to know the gamefield in detail, which I do not see how we could.

However, I am certain there are other candidates in the wings, because there is no lack of ambitious men. So I think a compromise candidate will emerge if Weber is stopped, just as Rumproy appeared when Blair was stopped.

What I think would be interesting is to formulate the ideal candidate (however unselectable) and push him (or her) as an explicit alternative to Weber. The point would not be to get the candidate selected but to push the discussion about what political direction ECB should and should not take. In the process Weber would be shot at and the ground would be made for that someone else.

So if we could pick anyone, then who? (And remember that Keynes is dead.)

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Fri Jan 21st, 2011 at 04:22:51 PM EST
If I can pick someone unelectable, how about Willem Buiter?

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 04:58:15 PM EST
[ Parent ]
How about Pedro Solbes? He's a former European Commissioner (1999-2004) and Spain's Economy minister (1993-6 and 2004-8), highly respected both in Spain and in Brussels.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Jan 21st, 2011 at 06:39:06 PM EST
[ Parent ]


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