By Simon Johnson
As controller of the euro, the European Central Bank (ECB) wields great power in Europe and has a wide global reach. The race to become the ECB’s next president – with a term that starts next year – has been intense and hard fought. The final selection is down to two men: the ultra hawkish Axel Weber, head of the Bundesbank, who sees inflation dangers at every turn; and the relatively more moderate Mario Draghi, head of the Bank of Italy, chair of the Financial Stability Board, and experienced international economic diplomat.
Unfortunately for those hoping that Draghi could still prevail, he is also formerly senior management at Goldman Sachs and serious questions are emerging regarding what he knew and did during Goldman’s alleged “let’s help Greece circumvent EU budget rules” phase in the early 2000s.
Specifically, Draghi joined Goldman Sachs in January 2002, after a distinguished public service career – including 10 years in a key position (Director General) at the Italian Treasury. His formal titles were Managing Director, Vice Chairman of Goldman Sachs International, and member of the “Group’s Commitment Committee”; his job, according to Goldman’s press release, was to “help the firm develop and execute business with major European corporations and with governments and government agencies worldwide.”
Did this involve Greece?
A German foreign affairs spokesman said yesterday, with regard to the Goldman-Greece transactions,
“Goldman Sachs broke the spirit of the Maastricht Treaty, though it is not certain it broke the law”
“What is certain is that we must never leave this kind of thing lurking in the shadows again.”
Presumably this means that Mr. Draghi will have to answer a series of embarrassing questions, should he wish to continue pursuing the presidency of the ECB, along the following lines.
- Was he aware of the Goldman-Greece deal(s)? (Given that he was involved in management for Goldman – and that these deals reportedly made $300m for the firm – he surely knew what was going on.)
- Did he attempt to stop it or prevent further such deals? If not, why not?
- Does he approve of such deals today? It not, why did he approve earlier in the decade?
- Did he or his associates engage in any such transactions for Italy when he was at the Ministry of Finance?
- Are there are other Greece-type deals, involving other EU countries (or anyone else), that he would care to discuss in detail?
These questions and many more will be asked by the German authorities, at first quietly and if necessary then out loud – both because they are (with good reason) upset at the prospect of bailing out Greece, and also because they insist Mr. Weber should run the ECB.
You can pretty much count Mr. Draghi out of the running for the ECB job, and it would not be a surprise if he soon steps down from chairing the Financial Stability Board.
Being associated with Goldman Sachs is now beyond awkward. For someone aiming high in the public sphere, work experience at the top levels of Goldman is fast becoming a toxic asset.