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Mirabile Dictu! ECB Chief Draghi Being Investigated for Membership in the Group of Thirty

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It’s easy for Americans to labor under the delusion that other parts of the the world have less obvious forms of corruption or its milder form, conflict of interest, than our revolving door system (one of my favorites was when the NY Fed staffer tasked to overseeing AIG left….to AIG).

And ex banking, that actually is true in most advanced economies. But as a reminder of how backs get scratched in Europe, we have Mario Draghi. The former head of the Bank of Italy, now ECB chairman, was responsible for European operations for Goldman from 2002 to 2005, and predictably has no memory of the currency swaps deal that enabled Greece to camouflage the size of its budget deficit. The new contretemps involves his membership in the Group of Thirty (aka G30), which despite its grand claims, is a bank lobbying group, even as he is serving as the head of the ECB. An alert reader pointed me to the story in Der Spiegel (German version only) and Google translate does a serviceable job.

The inquiry was set in motion by Corporate Observatory Europe, which is an anti-lobbying group. From a recent article on its website:

Industry experts and corporate lobbyists have effectively captured key areas of policy advice within the European Commission, according to new research carried out by the Alliance for Lobbying Transparency and Ethics Regulation (ALTER-EU) which finds that two thirds of DG Enterprise and Industry’s advisory groups are dominated by corporate representatives.

The Der Spiegel piece provides an overview of the G30 and highlights that bank executives play prominent roles. Per the Google translation:

The International Banking Seminar of the Group of Thirty (G30) is held every year to coincide with the fall meeting of the International Monetary Fund (IMF) and World Bank, and is accessible only to selected visitors. Behind the G30 hides a group of leading bankers and economists who wish to make claims to influence decisions in the financial sector. Prominent members include senior representatives of Goldman Sachs, Morgan Stanley and JPMorgan Chase International and former and current heads of central banks.

The original complaint contended that given the ECB’s role in bank regulation, having anyone in an executive capacity, let alone its chief, represented a serious conflict of interest. The EU Ombudsman thinks the charge has enough meat to warrant an investigation:

The EU Ombudsman Nikiforos Diamandouros has instituted investigations against Draghi and sent to the Central Bank a mandatory questionnaire. Up to 31 October, the ECB will announce how they rated Draghi’s role in the G30 and whether it includes in its membership a conflict of interest.

The European Ombudsman investigates complaints against EU institutions, which can be introduced both by citizens and organizations. For the procedure caused a stir recently with the European Food Safety Authority (EFSA). Thus, the Ombudsman has asked the EFSA in December 2011 to strengthen its rules and procedures to prevent conflicts of interest.

So it appears that the EU Obudsman has been able to get some changes put in place, albeit at less powerful organizations. And the charge certainly looks valid. Draghi should not be involved with the G30 while he is active at the ECB. And if the EU Obudsman does find Draghi’s membership to be a conflict of interest, that has to be just as true for the other EU central bankers that are current participants. And please, don’t try insulting the readership’s intelligence by arguing in comments that membership in the G30 is valuable to Draghi because he gets “information”. As a central banker, he can practice proctology on banks. He doesn’t need to be chatted up over caviar and champagne to get the intelligence he needs to do his job. If you don’t think the G30 is in the business of representing specific interests, I have a bridge I’d like to sell you. While this would be only one small step, it would still be gratifying to see pushback against the overly cozy relationship between central bankers and the banks they supposedly regulate.

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21 comments

  1. MyLessThanPrimeBeef

    I am just wondering what a samurai would do when exposed like this.

    Maybe we need more samurai center bankers.

    1. C

      This is less Samurai and more Caligula, march to the sea, declare war on it for being there and, when that fails to make reality bend to your will kill some slaves for their mistakes.

      I personally won’t hold my breath for the ECB Ombudsman, a person who works for the ECB after all, to give his boss so much as a paper cut over this.

      1. Yan

        He’s the EU Ombudsman. Not the ECB’s.
        Don’t hold your breath but at least there is talk of it and, as far as I’ve seen in European newspapers, it has been widely printed.

    1. C

      Think of it this way. All that time spent tracking who was a regulator, who was not, it’s just wasted money. Oil for the pointless door. Why not just eliminate the middleman and eliminate the door entirely!

      Now that’s business being efficient!

  2. Middle Seaman

    Calls for moral outrage in Draghi’s case are bizarre. Civilization, and Europe and the US in particular, have a long history of power struggles, blood, money and misplaced moral outrage. Europe killed close to 200 million people in the 20th century. To this day the pretend moral Europeans oppress the Roma and their Muslim neighbors. The US settled in an Indian country, confiscated the land and continues to abuse Native Americans.

    Bankers are the global hungry deadly forces who successfully took over the two continents.

    1. Rcoutme

      Just because Hitler murdered and/or caused the deaths of fifty million people does not mean that murder should be accepted as a fact of life!

  3. Renodino

    And Draghi’s son trades interest rate CDs, of all things, for an investment bank in London. Must have been a good week last week to be in that business.

  4. YesMaybe

    I have a bridge I’d like to sell you. While this would be only one small step, you could then take out a HELOC on it (claim to live under the bridge if necessary) and I’ll sell you Mt. Rushmore too.

  5. Jeff

    I love the proctology analogy!

    “As a central banker, he can practice proctology on banks. He doesn’t need to be chatted up over caviar and champagne to get the intelligence he needs to do his job.”

    LOL

  6. Susan the other

    Central bankers, working for governments, are taking over finance because finance is all that is left. There are no markets and the new attitude is ‘we don’t need no stinkin markets.’ What good are markets when there is no growth? Who is going to invest in a rat hole? Bill Gross has now said equities are history, just like he said bonds were history. I really am starting to think the EZ, led by the Germans, are just faking us out. The dollar and the Euro will both soon be based on strategic commodities. Don’t worry, be happy.

    1. Tim

      This is all nuclear weapons’ fault (MAD). If we didn’t have those darn things we could actually just be manipulated into large scale ground wars by the bankers, followed by rebuilding but instead they are forced to settle for economic destruction to acheive their means.

      This is the new war. in the end we will have to see if information technology and the human spirit is capable of resistance. It looks doubtful so far.

    1. Yves Smith Post author

      Yes, because Krugman belongs!

      He’s relying on a Washington DC legalistic definition of lobbying. Go read their stuff. They are organized to push public proposals and they clearly tilt in the direction of favoring banks.

      1. PaulArt

        Just dumped some comment scat on his blog regarding this outrageous entry. I almost revere the fellow, have personally benefited from reading his column since 1999 but he does feign a tin ear whenever it comes to revolving door regulators. He was extraordinarily civil and courteous to Uncle Ben for quite a long while (yes I know Ben kinda hired him into Princeton but why should a fellow with a million dollars of Nobel cash care?). His deference to Timmy Geithner has also been evident over the years. I totally believe that he is part of the neo-liberal cabal judging from his shameless Obama cheer leading. He has the classic naivety of the ‘permanent’ academic. There are some things you never learn without the benefit of the real world outside of campus.

  7. Tim

    Perhaps this is a covert attempt by Germany to throw him under the bus before he can unleash the money printing operation he spoke of last week.

    He’s lucky he’s ex-Goldman otherwise they probably would’ve just found a “good accident” for him to end up dead.

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