Euro­pean court to rule over ECB’S se­cret Greek file

The Pak Banker - - Front Page -


A court will de­cide to­mor­row whether the Euro­pean Cen­tral Bank should re­lease files on how Greece used de­riv­a­tives to hide its debt in the first le­gal chal­lenge to the author­ity’s bid to shield its work­ings from scru­tiny.

Bloomberg sued the ECB in De­cem­ber 2010 to ob­tain the doc­u­ments un­der Euro­pean Union free­dom-of-in­for­ma­tion rules. The pa­pers may il­lu­mi­nate the role the cen­tral bank played as Greece cov­ered up its deficit for al­most a decade be­fore seek­ing a 240 bil­lion-euro ($311 bil­lion) bailout and the big­gest debt re­struc­tur­ing in his­tory. A euro sign sculp­ture stands out­side the head­quar­ters of the Euro­pean Cen­tral Bank ( ECB) in Frankfurt, Ger­many.

The ECB, which puts greater lim­its on its dis­clo­sures about its de­ci­sion mak­ing than its Bri­tish and U.S. equiv­a­lents, with­holds min­utes from meet­ings for decades and keeps mem­bers’ votes pri­vate. The cen­tral bank is un­der pres­sure from pol­icy mak­ers in­clud­ing gov­ern­ing coun­cil mem­ber Erkki Li­ika­nen to boost trans­parency as it be­comes both lender of last re­sort to na­tions hit by the debt cri­sis and reg­u­la­tor of the re­gion’s banks. The ECB this week en­dorsed a package of mea­sures to keep Greece from bank­ruptcy. “It’s a mo­men­tous oc­ca­sion for Europe to show its deep com­mit­ment to the fun­da­men­tal prin­ci­ple of accountability in the face of fis­cal mis­man­age­ment,” said Gus­tavo Piga, an eco­nom­ics pro­fes­sor at Univer­sity of Rome Tor Ver­gata, and former ad­viser to the Ital­ian Trea­sury. Bloomberg’s free­dom-ofin­for­ma­tion re­quest, filed in Au­gust 2010, was twice re­jected by the ECB. Bloomberg’s law­suit at the Gen­eral Court in Lux­em­bourg seeks ac­cess to two in­ter- nal pa­pers drafted for the cen­tral bank’s six-mem­ber Ex­ec­u­tive Board. The first doc­u­ment is en­ti­tled “The im­pact on government deficit and debt from off-mar­ket swaps: the Greek case.”

The sec­ond re­views Tit­los Plc, a struc­ture that al­lowed Na­tional Bank of Greece SA (ETE), the coun­try’s big­gest lender, to bor­row from the ECB by cre­at­ing col­lat­eral from a se­cu­ri­ti­za­tion of swaps on Greek government debt, the Ex­ec­u­tive Board said in a March 2010 cover note ob­tained by Bloomberg News.

If the court rules against the ECB, the cen­tral bank would have two months to com­ply. Both sides can ap­peal the de­ci­sion at the Euro­pean Court of Jus­tice.

The ECB said at a court hear­ing on June 14 that mak­ing the two doc­u­ments pub­lic could still ag­gra­vate the cri­sis, putting the fu­ture of the sin­gle cur­rency at risk. The files con­tain as­sump­tions and hy­pothe­ses that were used to shape de­ci­sions and their re­lease could threaten pol­icy mak­ing, the cen­tral bank has ar­gued. “There are lim­its to trans­parency,” said Ernest Pa­trikis, a part­ner at law firm White & Case LLP and a former gen­eral coun­sel at the Fed­eral Re­serve Bank of New York. “When things are nur­tured enough and old enough that they should be avail­able to schol­ars, that’s one thing, but too much trans­parency chills dis­cus­sion.”

The ECB has been cen­tral to keep­ing Greek banks afloat since the cri­sis be­gan, pro­vid­ing loans and at times risk­ing Euro­pean tax­pay­ers’ money in event of an out­right de­fault. The cen­tral bank owns about 45 bil­lion eu­ros of Greek government bonds af­ter it be­gan buy­ing them in 2010 af­ter the first res­cue.

The brief­ings give of­fi­cials’ views on the im­pact of the swaps and an­a­lyze how the Tit­los trans­ac­tion would af­fect “the Eurosys­tem col­lat­eral frame­work, and as­so­ci­ated risk con­trol mea­sures,” then ECB Pres­i­dent Jean-Claude Trichet said in his re­ply to Bloomberg’s ini­tial re­quest for in­for­ma­tion.

The files “played a role” in shap­ing pol­icy and “high­lighted there were is­sues” when the ECB un­der­took a re­view of its cri­te­ria for ac­cept­ing col­lat­eral in its fund­ing op­er­a­tions, the ECB’s lawyers told the court in June.

One of the cor­ner­stones of the ECB’s re­sponse to the cri­sis was to pro­vide banks with as much money as they needed in re­turn for col­lat­eral. In Oc­to­ber 2010, the ECB changed the rules on the as­set-backed se­cu­ri­ties it ac­cepted, and gave it­self more dis­cre­tionary power to re­ject col­lat­eral.

In April 2009 — seven months be­fore the Greek cri­sis erupted — ECB of­fi­cials spot­ted “a swap op­er­a­tion in un­usual terms,” ac­cord­ing to the March 2010 cover note.

Re­peated re­vi­sions of Greece’s bud­get fig­ures start­ing in Oc­to­ber 2009 spurred a surge in the coun­try’s bor­row­ing costs, even­tu­ally forc­ing the na­tion to seek aid from the EU and the In­ter­na­tional Mon­e­tary Fund. In 2010, Euro­stat, the EU statis­tics agency, gained ad­di­tional pow­ers al­low­ing it to au­dit coun­tries’ fi­nan­cial data. “An ECB view on a his­tor­i­cal event in Greece is hardly go­ing to un­der­mine its abil­ity to in­flu­ence mar­kets and is un­likely to un­der­mine the ECB’s cred­i­bil­ity,” said Char­lotte Gai­tanides, a lawyer and head of Euro­pean Stud­ies at the Univer­sity of Flens­burg in Ger­many. “If it was a bit more trans­par­ent on is­sues that do not di­rectly af­fect its abil­ity to con­duct mon­e­tary pol­icy, it would prob­a­bly en­hance it.”

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