Tag Archives: Jean-Claude Trichet

Former Goldman Sachs Banker Become New ECB President

Italian central banker and former Goldman Sachs employe,  Mario Draghi, has won the backing of EU leaders to become the next president of the European Central Bank (ECB) from the November. Draghi entered the spotlight when it became clear that Goldman Sachs was swapping Greek debt to cover up the economic disaster.

“The deals were undertaken before my joining Goldman Sachs and  I had nothing to do with them.”

Mario Draghi

The EU leaders made the decision at a European Summit in Brussels on Friday at a time of unprecedented turmoil for the 17-member euro zone.

“We are all confident that Mr Draghi will exercise strong and independent leadership of the ECB, continuing the tradition started by the banks first two presidents,” European Council President Herman Van Rompuy told journalists after the meeting.

Adding: “This is essential in normal times and indispensable in difficult times.”

A potential hurdle to Draghi’s smooth takeover from current ECB President Jean-Claude Trichet was removed earlier in the day, amid French concerns of a loss of influence on the bank’s executive board.

With Trichet stepping down, France will be without a member on the six-person panel, while Italy will have two in the form of Draghi and Lorenzo Bini Smaghi.

An implied French threat to block Draghi’s takeover was averted however when Smaghi signaled he would step down before the end of his full term expired.

“I spoke to Mr Smaghi this morning by phone and he did tell me personally that he would not see his mandate as a member of the governing board through to its end,” Van Rompuy says.

“It’s up to Mr Smaghi to decide what timetable he may have.”

Full story at the EUobserver.com.

Right Man at the Right Place at the Right Time

Born in Rome, Draghi graduated from La Sapienza University of Rome under the supervision of Federico Caffè, then earned a Ph.D in economics from the Massachusetts Institute of Technology in 1976 under the supervision of Nobel Laureates Franco Modigliani and Robert Solow.

He was full professor at the University of Florence from 1981 until 1991.

From 1984 to 1990 he was Executive Director of the World Bank.

In 1991, he became director general of the Italian Treasury, and held this office until 2001.

During his time at the Treasury, he chaired the committee that revised Italian corporate and financial legislation and drafted the law that governs Italian financial markets.

He is also a former board member of several banks and corporations (Eni, IRI, BNL and IMI).

Draghi was then vice chairman and managing director of Goldman Sachs International and a member of the firm-wide management committee between 2002–2005.

A controversy erupted on his duties while employed at Goldman Sachs.

Pascal Canfin (MEP) asserted Draghi was involved in swaps for European governments, namely Greece, trying to disguise their countries’ economic status.

Draghi responded that the deals were “undertaken before my joining Goldman Sachs and  I had nothing to do with” them, in the 2011 European Parliament nomination hearings.

Draghi is a trustee at the Institute for Advanced Study in Princeton, New Jersey and also at the Brookings Institution, in Washington, D.C..

He has also been a Fellow of the Institute of Politics at the John F. Kennedy School of Government, Harvard University.

Wonder if this will bring back confidence to the financial markets?

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European Credit Market: Close To Panic (Update)

While investors in the European credit market more or less capitulated last week, the situation is now more like a total panic. ECB President Jean-Claude Trichet says that the risk to the financial system is as high as it possible can be, putting the mark in RED zone on the new colorized risk meter.

“This did little to boost confidence in a market that already had concerns over the Greek government’s ability to get its austerity measures through parliament.”

Gavan Nolan

The Markit iTraxx SovX Western Europe breached the level  of 240 basis points for only the second time on record. Greek spreads blew up 213 bp’s, to 2100. Portugal gained 50 and are now trading at at record wide levels – 825 points. Other peripherals also widened sharply.

Contagion watchers will have been concerned by the significant moves in Spain (305bp, +22) and Italy (200bp, +20).

The latter sovereign went above 200 basis points  for the first time since January.

See also:

After ECB president Jean-Claude Trichet said that the risk to the financial system is as high as its gets. Trichet also said that the newly created European Systemic Risk Board was planning a “risk dashboard” with a color-coded warning system. And when asked what the current color would be, he answered; “on a personal basis, I would say it is red”.

“Unsurprisingly, this did little to boost confidence in a market that already had concerns over the Greek government’s ability to get its austerity measures through parliament. The conservative opposition declared that it would vote against the bill. This was to be expected and was consistent with its recent position. But there are signs that members of the ruling socialist PASOK party could also vote against the bill, placing its passage in doubt. Even if the government gets the measures through parliament it faces a considerable challenge in implementing them,” analyst Gavan Nolan at Markit Credit Research writes in today’s Intraday Alert.

Adding: “Talk of a “black hole” in the austerity plans added to negative sentiment.”

But the peripherals didn’t have just Greece to contend with, Nolan continues.

“The markets were already in a bearish mood after Ben Bernanke’s cheerless assessment of the US economy, and yet more disappointing economic data was unlikely to be shrugged off. So it proved with the release of Markit PMIs this morning.”

Recession Is Back?

Overnight the Markit/HSBC Flash China Manufacturing PMI came in at 50,1 –  a significant drop from the previous month,  and an 11-month low.

“A hard landing for the Chinese economy is one of the main fears of investors, and sentiment hasn’t been helped by the Sino-Forest scandal,” Gavan Nolan explain.

Growth momentum also appears to be slowing in the euro zone.

The Markit Flash Euro zone PMI fell to 53.6 in June, the lowest level since October 2009.

The core-periphery dichotomy is still evident, but worryingly the rate of growth in German manufacturing slowed sharply.

Output in the euro zone, excluding Germany and France, contracted for the first time since September 2009.

The data underlined just how difficult it will be for the peripheral countries to reduce their debt burdens through growth.

Volatility in the commodity world added to the tension.

Brent crude was down by over $6 a barrel to $107 after the International Energy Agency announced that its members were releasing 60 million barrels of oil from their emergency stocks.

Glencore – 302 bp’s, +36 – the world’s biggest commodity trader was the day’s worst corporate performer.

Here are copies of the latest Markit PMI survey:

Markit Economic Research: Eurozone PMI. 23062011.

Markit Economic Research: PMI and CBI surveys compared. 23062011.

Markit Economic Research: HSBC Flash China Manufacturing PMI. 23062011.

Markit Economic Research. China PMI Flash Comment. 23062011.

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Political Incorrect About Europe’s Political Union

Ouch! This one hurts! At least for the political and economic establishment of Europe who are currently engaged in a massive PR campaign to strengthen the European union – in both monetary and political terms. Financial Times  commentator Gideon Rachman, however, provides a complete different view.

“There is not a strong enough common political identity in Europe to support the single currency.”

Gideon Rachman

Well, what Rachman points out, the EconoTwist’s have been indicating since the global financial crisis started to affect Europe, late 2008. Europe is not USA, it can never be, the core of the European culture is diversity. It has always been – for good and for bad – and it will stay that way for all forseeable future.

Like the recent agreement between Germany and France to go for a voluntary bail-in of Greek bondholders.
Take a look at the history; have a German-Franco alliance ever lasted for  more than a couple of months?
Have the Brits and the French ever managed to agree on anything? (blaming Napoleon just doesn’t cut it).
The Austrians and the Hungarians will always be sceptical towards Serbians, and the whole western Europe needs lots of therapy sessions before they are ready to accept Russia – or any former Soviet republics – as “one of their own.”
I guess I have to quote myself:
“The European Union is the  result of – in this bloggers opinion – a well-meant, but unrealistic, political idea of equality and cohesion. An ideology that in theory is a very nice thought, but in reality very hard to achieve.”
(EconoTwist’s: November 23. 2010)

As the Greek crisis worsens, voices are being raised demanding new and more radical approaches.

Forget the sticking plaster bailouts and slice-by-slice austerity packages. The ultimate solution to the euro zone debt crisis is a political union!

Okay. Enough of my self-righteous I-told-you-so remarks – here’s Gideon Rachman:

Last week Nout Wellink, the Dutch central bank governor, became the latest senior figure to float this idea, when he argued that the euro zone needs “an institutional set-up that has characteristics of a political union”.

According to Mr Wellink, “a European finance ministry would be an important step in the right direction.”

Jean-Claude Trichet, the head of the European Central Bank, has also backed the creation of a European finance ministry – which in turn implies a much larger central budget and more decisions on spending and taxation taken in Brussels, rather than in national capitals.

Those who argue that “political union” is the solution to the current crisis seem to believe that Europe’s problem is institutional.

Unlike the US, the euro zone does not have the political institutions to back up a common currency.

But if Europe was just equipped with a finance ministry or the facility to issue euro zone bonds or to tax citizens directly, everything could be fixed.

This is a profound misdiagnosis of the crisis. The real problem is political and cultural.

There is not a strong enough common political identity in Europe to support the single currency.

That is why German, Dutch and Finnish voters are revolting against the idea of bailing out Greece again – while Greeks riot against what they see as a new colonialism imposed from Brussels and Frankfurt.

To argue that even deeper political integration is the solution to this mess, is like recommending that a man with alcohol poisoning should treat himself with a more powerful brand of vodka.

It is important to understand that the origins of the current crisis lie precisely in the dream of political union in Europe.

For the true believers, currency union was always just a means to that greater end.

It was a way of “building Europe.”

If bits of the construction were missing – such as a European finance ministry – they could be added later.

Helmut Kohl, the chancellor of Germany in the early 1990’s, was so convinced of the need to bind a united Germany into the European Union that he was prepared to press ahead with the euro, in the face of 80 per cent opposition from the German public.

At a seminar in London last week, Joschka Fischer, a former German foreign minister, who is one of the boldest advocates of deeper European unity, was unrepentant in defending this elitist model of politics. He insisted that most important foreign policy decisions in postwar Germany had been made in the teeth of public opposition.

“It’s called leadership,” he explained.

Such leadership is all very well, if it is vindicated by events.

However, if elite decisions go wrong, they create a backlash – which is exactly what is happening in Europe now.

German voters were told repeatedly that the euro would be a stable currency and that they would not have to bail out southern Europe. They now feel betrayed and angry.

Greek, Irish, Spanish and Portuguese voters were told repeatedly that the euro was the route to wealth on a par with that of northern Europe.

They now associate the single currency with lost jobs, falling wages and slashed pensions. They too feel betrayed and angry.

As a result, the space for political manoeuvre is narrowing on either side of Europe’s creditor-debtor divide.

The Greek government can barely muster a majority to force through its latest austerity package.

The German government of Angela Merkel is losing support and is facing an increasingly Eurosceptic public.

Meanwhile, radical anti-European parties are on the rise in other creditor nations, such as Finland and the Netherlands.

Most European leaders still blithely assert that they will do whatever it takes to save the euro. But these leaders operate in democracies. If they take decisions that voters simply cannot accept, they will lose their jobs.

The relations between the people of the EU are cracking under the strain of the euro crisis.

In Athens, demonstrators wave EU flags with the swastika imposed upon it.

In Germany, the euro crisis has made it permissible to denounce profligate and corrupt southern Europeans.

A single currency that was meant to bring Europeans together is instead driving them apart.

The politics of fiscal transfer are tricky, even in long-established nation states.

Think of the strains between northern and southern Italy; or between Flanders and Wallonia in Belgium.

But the tensions are far worse in a newly created euro zone of 17 nations with different histories, cultures and levels of economic development.

Simply ignoring this – and trying to press ahead with a deeper political union – would invite an even more dangerous backlash in the future.

But if political union is not the answer to Europe’s problems, what is?

There are two possible solutions.

The euro zone leaders might somehow patch the current system up. Or the weaker members of the currency union – above all, Greece – could leave.

That process would be chaotic and dangerous.

But Greece, as it stands, is a demoralised country that has lost the sense that it controls its own government.

Leaving the euro might just be the beginning of a national regeneration.

(Finacial Times. June 21. 2011)

Still; 50 CEO’s of the biggest companies in Germany and France have launched their pro Euro campaign in the press of both countries.

They are placing full-page ads in German papers, under the headline “The Euro is necessary”  (including a short text explaining why).

Le Monde prints the text as an Oped (free of charge, we presume) while the German papers print it as a commercial ad.

Mass circulation daily Bild has an interview with Gerhard Cromme, head of the supervisory board of ThyssenKrupp and one of the initiators of the campaign, in which he warns a failure of the euro would have “fatal consequences” for all of us.

Frankfurter Allgemeine Zeitung has a story in which companies that are owned by their bosses (not publicly traded companies) criticize the PR campaign by complaining that it encourages the German government to waste the taxpayer’s money on Greece.

….I’m trying really hard to not make any further comments…..

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