At a time when Mario Draghi’s style of running the European Central Bank is under question – there’s reportedly been grumbling he’s setting monetary policy in off-the-cuff public remarks rather than in consultation with the bank’s board members – it is easy to forget that Draghi’s most famous act as ECB chief was also an unscripted public utterance: “whatever it takes”.
The now-famous 2012 remark, which is widely credited with ending the hair-on-fire phase of the eurozone crisis by hinting the ECB would use its printing presses to buy up sovereign debt of besieged governments, has long been viewed as a masterstroke of market management, since the ECB has yet to spend a cent on such bond purchases.
But as the FT and other news organisations have reported, many on the ECB governing council were taken aback by the remarks because the issue wasn’t discussed more widely before Draghi declared it as ECB policy.
The Brussels Blog recently got its hands on yet more evidence that Draghi’s remarks – made at a conference in London in July 2012 – were inserted at the last minute without wider consultation: raw transcripts of discussions with Timothy Geithner, who was US treasury secretary at the time, about the eurozone crisis.
The 100 pages of transcripts we obtained are of interviews Geithner gave to assistants preparing his book, Stress Test: Reflections on Financial Crises, which was published in May. Many of the recollections also appear in the book, but Geithner provides more detail and more bluntness – including a fondness for the f-word – in the pages we obtained.
This is particularly the case for the “whatever it takes” speech. In his book, Geithner mentions the remark was impromptu. But in the transcript, Geithner reveals his source for that passage: Draghi himself, who told Geithner he had decided to insert the words into his address after meeting with London financiers who were convinced the eurozone was on the brink of implosion. Here’s the section of the transcript relating to Draghi’s speech: Read more
Moghadam, left, with his deputy director Poul Thomsen during a meeting in Brussels
As the eurozone crisis slowly fades into history, many of its most prominent players are moving on as well. On Wednesday, Reza Moghadam, head of the European department at the International Monetary Fund and arguably the fund’s most influential official during the crisis, announced his departure to take a top job at Morgan Stanley in London.
According to officials close to Moghadam, part of his reason for leaving is because he held several of the IMF’s most senior posts over his 22 year career and now could only move laterally to other director positions. In addition, those who have spoken to him said most of his family – including his mother and adult children – now live in the UK and he was eager to return to Britain after more than two decades in Washington.
“Leaving the fund has not been an easy decision and I go with a heavy heart,” Moghadam said in a statement released by the IMF. “But I look forward to a new chapter in my life and a new career, and to being back home in the UK with my family.”
At Morgan Stanley, Moghadam will be vice chairman of the global capital markets group, where he will continue to deal with public finance issues, including working with governments seeking advice on debt or fiscal issues. Because he’s moving into a private-sector job that overlaps with his current duties, he will give up his IMF responsibilities immediately and won’t begin his job in London until October or November. Read more
Van Rompuy meeting with Britain's David Cameron at Downing Street on Monday
The less-watched parallel process to selecting the new head of the European Commission has been Herman Van Rompuy’s effort, backed by several member states, to come up with a work programme for the new commission president that will lock him in for the next five years when it comes to policy programmes and priorities.
Even though advocates of such an idea appear to be pushing the same policies that are mentioned in nearly every EU summit communiqué, several countries – including strange bedfellows like the Netherlands and Italy – have argued such an agenda is in some ways more important than the leader who takes over the commission in November. They insist it will enable Europe’s prime ministers to put their stamp on the next commission and its priorities after the European Parliament was seen to have dragged the current one around.
As a first step towards agreeing such a programme, Van Rompuy, the outgoing European Council president, on Monday circulated a four-page “strategic agenda” for the new commission, which he hopes to get agreed at this week’s high-stakes EU summit. We wrote about it here, but as usual for readers of Brussels Blog, we’re providing a bit more detail for those more interested, including a copy of the document, which we’ve posted here. Read more
After months of speculation, official confirmation finally came on Friday that Ramon Fernandez, one of the central players in Brussels on the French side throughout eurozone crisis negotiations, will step down as head of the French Treasury at the end of June.
He will be replaced by Bruno Bézard, 51, currently director general of public finances at the finance ministry and a figure firmly in the tradition of French haut functionnaires: a graduate of both Ena and L’Ecole Polytechnique, the elite graduate schools, he was an economic adviser to former socialist prime minister Lionel Jospin and has headed the APE, the agency that holds most of the state’s big company shareholdings.
Fernandez, 46, an amiable figure who combines formidable technical skills with an impish sense of humour, found himself in an uncomfortable position after the election in 2012 of President François Hollande. Firmly identified with the centre-right, Fernandez was appointed in 2009 by former president Nicolas Sarkozy and was regarded with deep suspicion by many on the socialist left, notably the voluble Arnaud Montebourg, now economy and industry minister. The directeur du Trésor is a powerful position as the senior civil servant in the finance ministry empire. Read more
Are the Dutch attempting to lead a mutiny on bank reform? It is hard to tell whether the objections are serious enough to unravel the deal last week on the EU rules for handling a bank crisis. But something mildly rebellious is certainly afoot. And it could end in another golden-gloves showdown between Jeroen Dijsselbloem, the Dutch finance minister, and his Swedish sparring partner Anders Borg.
At issue is the draft deal on the bank recovery and resolution directive (BRRD), which was agreed between negotiators for the European parliament and EU member states on Wednesday, brining to a close months of difficult talks. The reforms give all EU countries a rulebook at national level to handle a bank in trouble and, if necessary, bail-in creditors to help foot the bill.
The Dutch, however, are unimpressed. They think the draft agreement offers too much freedom to governments wanting bailout banks with public money, rather than impose losses on bondholders. And it looks like they have a significant number of allies. Read more
Mario Draghi, left, stands next to Noonan at last week's finance ministers' meeting
Given the eurozone crisis has, for more than a year, failed to seriously rankle the financial markets, those of us still preoccupied with its aftermath and how it is changing Europe can occasionally feel like a small band of obsessives offering up Talmudic pronouncements of interest to a dwindling number of fellow crisis junkies.
But occasionally one of those textual debates rises to the level of importance that’s worth the attention of a broader audience. And one of those occasions seems to have occurred over the last couple of weeks regarding Ireland and the European Central Bank’s bond-buying programme, known as Outright Monetary Transactions (OMT).
For those who haven’t been following this obsessively, the discussion is important because most officials and market analysts credit OMT with, essentially, ending the hair-on-fire phase of the eurozone crisis last year. Read more
Ireland's Enda Kenny, left, and Germany's Angela Merkel meeting last year in Berlin
With just over a month of funding left in Ireland’s €67.5bn three-year bailout, Irish prime minister Enda Kenny sent a subtly-worded letter to his fellow EU leaders as they gathered in Brussels today for their two-day summit.
At first glance, the letter (we’ve posted a copy here) seems to simply repeat messages that Kenny has made in the past: he’s weighing whether to request a line of credit after they exit the bailout; he wants quick completion of the eurozone’s “banking union”; he continues to hit his bailout targets.
But a closer read between the lines shows a more complicated game going on. In essence, Kenny is reminding other leaders they have failed to live up to promises made to Ireland last year that would have significantly lowered the Dublin’s sovereign debt levels. An annotated look at the letter after the jump.
Backstops? A safety net for banks in difficulty? Why the fuss? We have one already! That is the rough conclusion from finance ministers meeting in Luxembourg on Monday and Tuesday.
To provide some context, the apple of discord is whether Europe should pool more public funds to stand behind its banking system. Looming on the horizon is a stress test of banks next year that is supposed to restore faith in the financial system. It may uncover horrors that can’t be covered by contributions from private investors. If a bailout is needed, the open question is whether the bank’s sovereign will be able to fund it by borrowing from the market or from eurozone bailout funds without rekindling the sovereign debt crisis.
So what is the plan? Well there is no sign of new money. For the more optimistic finance ministers the ultimate, ultimate backstop — only to be used in exceptional circumstances — is apparently a “direct recapitalisation” from the European Stability Mechanism, the eurozone’s E500bn bailout fund.
The trouble is that there are a legion of hurdles to clear before using this instrument in practice — especially if it is to be used to cover any shortfall exposed next year. The rough rules on the use of the instrument were published in June. Many senior officials think it is so encumbered with conditions as to be almost pointless. If direct recap is the backstop, some finance ministers will be worriedly looking over their shoulder.
TEN OBSTACLES TO A DIRECT RECAPITALISATION
1. German veto: Any ESM decision to take a direct stake in a bank is subject to a German veto. Berlin is determined to ensure that even if this tool is theoretically “available”, it remains unused. Wolfgang Schäuble, Germany’s finance minister, even said on Tuesday that German law would need to be changed to use the direct recap instrument.
2. German veto: the Bundestag would have to vote through any direct recap. Germany’s centre-left Social Democratic Party, the most likely coalition partner for Chancellor Angela Merkel, is dead-set against direct recapitalisation of banks. It thinks the financial sector, not taxpayers, should foot the bill for bank failure. Read more
My big fat Greek presidency it will not be. When Athens takes the reins of the EU’s rotating presidency in January, the government will manage the event like a family throwing a frugal wedding.
That is only to be expected since Greece’s crisis-hit economy is now enduring its sixth year of recession, the public coffers are bare and unemployment is nearing 30 per cent. Dishing out huge amounts of cash to impress visiting diplomats would likely provoke outrage from a citizenry that is increasingly unhappy with the EU, as it is.
So how frugal is Greece planning to be? The government has set a €50m budget for the six-month affair, down from the €60m to €80m spent by predecessors like Ireland,Cyprus,Denmark and Lithuania. Officials say they are hoping that the final bill comes to even less.
The Greeks have found a few simple ways to cut costs. They will limit the number of ministerial meetings that will be held in their country to just 13 – keeping as much of the work in the EU’s Brussels headquarters as possible. All of the Greek meetings will be hosted in Athens. Read more
Reactions around Europe to Angela Merkel’s sweeping victory in Sunday’s German parliamentary elections were mixed. As expected, fellow leaders – particularly those of the centre-right persuasion – sent their congratulations while some on the centre-left called for Merkel to join the Social Democrats in a grand coalition.
In Italy, the Berlusconi-owned newspaper Il Giornale warned the result left the EU “in the hands of the chancellor who helped exacerbate the economic crisis.”
The differing views reflect increasingly polarising opinions towards Merkel across the eurozone. Just last week, the German Marshall Fund published its annual “Transatlantic Trends” report, which included polling of 11 EU countries (plus Turkey) and their views of Merkel’s handling of the eurozone crisis.