Is the ECB out of Control?
It all began with an early morning police raid. On July 6, Slovenian Police, acting on an insider tip, stormed the headquarters of the country’s central bank, the Bank of Slovenia, and seized information stored on the bank’s internal network. It also raided the headquarters of the major state-owned bank Nova Ljubljanksa and the local offices of international accountancy firms (and prolific enablers of corporate misbehavior), Ernst & Young and Deloitte.
The police were investigating allegations that some “legal entities” had abused their office in valuing equity at Nova Ljubljanksa during its bailout by the state in 2013. €257 million is alleged to have been misappropriated, during the €3.2 billion bailout of the banks.
The action provoked a furious backlash from ECB chairman Mario Draghi, who wrote the following in a strongly worded letter:
The ECB deplores that there was no attempt to find a solution reconciling the conduct of the pre-criminal investigations with the ECB’s privilege on inviolability of its archives…Both Slovenia’s central bank and Finance Minister Dusan Mramor, who unexpectedly resigned on July 13, sided with Draghi, arguing that the probe represented an attack on the central bank’s institutional independence. They both called on Prosecutor General Zvonko Fiser to conclude his probe into the €3.2 billion recapitalization of state-owned banks as swiftly as possible.
The ECB also regrets that the actions of the Slovenian Police risk putting into question the fulfilment of the Bank of Slovenia’s tasks as a member of the Eurosystem, as well as that of its governor in his personal capacity as a member of the Governing Council of the ECB.
But not everyone agrees. According to the police, legal entities, including the Bank of Slovenia and its staff “are not protected from investigations” in pretrial proceedings. Likewise, a Slovenian association of small shareholders, representing owners of around €600 million of subordinated bonds that were bailed in as part of Slovenia’s bailout, accused the ECB president of interfering “with the independence of Slovenian authorities, prosecution, and courts.”
In part they are right: the ECB is directly interfering in the actions of Slovenian authorities, prosecution, and courts. But where they are wrong is in their belief that these institutions enjoy any kind of procedural independence when it comes to investigating the actions of Slovenia’s central bank in its bailout of the financial system. Such powers were signed away a long time ago by Slovenia’s government — and the governments of all other Eurozone member states.
The ECB and all of its affiliated national central banks are, by law, above the law of national jurisdictions and answerable only to the European Court of Justice, provided they are fulfilling the functions and responsibilities assigned to them by EU law. This is particularly true in relation to bailouts of Europe’s financial institutions, an issue that is once again on the front pages, as the financial sector of Italy readies itself for a bailout of potentially biblical proportions.
No European institution is as immune from national law as the Luxembourg-based European Stability Mechanism (ESM), which was founded on September 27, 2012, as a permanent facility within the ECB to provide bailouts to countries that are in distress. It currently has an authorized capital limit of €700 billion, though that can be expanded at any time by the board of governors, and individual Eurozone member states are “irrevocably and unconditionally” required to cough up the funds....MORE