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Disclosure generates instability: what the (old) ECB believed in

From a previous post on this blog: Mr Trichet’s 2010 declaration as to why he will not release details of derivative transactions of Greece. “The European Central Bank refused to disclose internal documents showing how Greece used derivatives to hide its government debt because of the “acute” risk of roiling (sic) markets, President Jean-Claude Trichet said.”(Bloomberg, November 5, 2010). “The information contained in the two documents would undermine the public confidence as regards the effective conduct of economic policy,” Trichet wrote in an Oct. 21 letter in which he rejected the appeal. Disclosure “bears, in the current very vulnerable market environment, the substantial and acute risk of adding to volatility and instability.”

That’s right, instability, these were his exact words when speaking about disclosure.

Now for the new stuff. For the new stuff we need to go back in time. Up to 2004. March 4th, to be precise. At the time M. Trichet was already President of the ECB. On March 4th the ECB issued DECISION ECB/2004/3 on public access to European Central Bank documents.

In its article 4.1.a. of ECB/2004/3 one read:

“1. The ECB shall refuse access to a document where disclosure would undermine the protection of:

(a) the public interest as regards:

— the confidentiality of the proceedings of the ECB’s decision-making bodies,

— the financial, monetary or economic policy of the Community or a Member State,

— the internal finances of the ECB or of the NCBs,

— protecting the integrity of euro banknotes,

— public security,

— international financial, monetary or economic relations;

Now quickly move forward in time. Spring 2011, Mr. Trichet is still President of the ECB. Greece and its derivative scandals are memories of the past, except for the Greek citizens, that ask for transparency and disclosure, just like Bloomberg, to obtain justice. Both are denied by the ECB, which has internal knowledge about the infamous transaction.

May 9, 2011. A new decision by the ECB, this time ECB/2011/6. Which, it turns out, modifies ECB/2004/3. In just a small passage. Let us read it:

“Decision ECB/2004/3 is amended as follows: … Article 4(1) is amended as follows: (a) in point (a) the following indent is added: ‘— the stability of the financial system in the Union or in a Member State;’;

To make a long story short, to the six reasons the ECB could invoke to deny disclosure a seventh one is added: stability. That’s right, yes, that same (in)stability quoted by M. Trichet a few months before so as to deny information to Bloomberg on the Greek transaction. A mere coincidence?

Bloomberg at the time had already taken to court the ECB and it is therefore likely that such an amendment done later will not bear on the Court decision on the matter of the Greek derivative. However, starting in May 2011, were any other journalist to follow up Bloomberg’s example and dare bravely to ask for ECB documents on derivatives to be made public, the ECB would have an additional legal tool in its own hands to fight against transparency and thereby to indirectly make those shadowy transactions less costly to be repeated through shady deals.

Now back to the present. Because we still have time to make amends. We do have a new leadership at the ECB. One that pledged, in the recent September 6 press conference on the new monetary policy, to fight the spreads in risky euro countries also through “much greater transparency”. We thus can only hope that  ECB/2011/6 will be repealed.

It would be the best way to inaugurate a new course where European citizens could trust their institutions to leave behind the dark side.

Thank you X.

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