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In Compromise, Belgian Named as Top E.C.B. Economist

January 3, 2012 by Leave a Comment

FRANKFURT — The European Central Bank unexpectedly named Peter Praet, a Belgian, as its de facto chief economist, breaking a tradition of having German hard liners occupy the key policy-making post.

Mr. Praet, a former economist at the International Monetary Fund who has been a member of the E.C.B. executive board since June, will replace Jürgen Stark as head of the economics department. Mr. Stark resigned at the end of 2011 because he opposed the bank’s intervention in sovereign bond markets.

The appointment of Mr. Praet, 62, is part of a major shift in top management at the E.C.B. that could lead to a slightly less hard-line approach by the institution with the most direct control over the fate of the euro.

Jörg Asmussen, a former top-ranking official in the German Finance Ministry, moved to the E.C.B. effective Jan. 1. Benoît Coeuré, former deputy director general of the French Treasury, also joined the six-member executive board at the beginning of the month, replacing Lorenzo Bini Smaghi, an Italian.

Both Mr. Asmussen, 45, and Mr. Coeuré, 42, were said to have coveted the economics portfolio, and the choice of Mr. Praet appears to have been a compromise. A spokesman for the German Bundesbank declined to comment on the appointment.

The head of the E.C.B. economics department briefs members of the bank’s governing council on the state of the euro zone economy. As such that person can play an important role in setting monetary policy. Before Mr. Stark, the E.C.B.’s economics department was overseen by Otmar Issing, a forceful personality who played a major role in enshrining the bank’s focus on fighting inflation above all else.

The views of Mr. Praet, the former executive director of the National Bank of Belgium, are not well known, but he is unlikely to be as militant on inflation as his predecessors.

In any case, the economics position is not as influential as it once was, said Marie Diron, a former E.C.B. staff economist who now advises the consulting firm Ernst Young.

In part that is because the governing council, which includes national central bank heads, has a number of other members with economics degrees — not least Mario Draghi, who took over as E.C.B. president in November. Mr. Draghi has a doctorate in economics from the Massachusetts Institute of Technology.

The chief economist “is less powerful and less determinant than he might have been five years ago,” Ms. Diron said. “The president and other members are able to really provide quite deep economic insights and there is not so much reliance on the chief economist.”

Mr. Asmussen’s portfolio will include responsibility for the E.C.B.’s relations with European governments. He played a similar role at the German Finance Ministry, and has been a main figure in negotiations on how to deal with the sovereign debt crisis. Mr. Coeuré will be responsible for the E.C.B.’s market operations, which currently include contentious interventions in bond markets.

Article source: http://www.nytimes.com/2012/01/04/business/global/04iht-ecb04.html?partner=rss&emc=rss

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New E.C.B. Official May Be Open to Bond-Buying

December 14, 2011 by Leave a Comment

Mr. Coeuré, 42, will take office in January, giving France a representative on the six-member board for the first time since Jean-Claude Trichet retired in October as E.C.B. president.

During testimony before a committee of the European Parliament on Monday, Mr. Coeuré said that it might be necessary for the E.C.B. to step up its purchases of sovereign bonds in order to maintain the bank’s control over interest rates.

That was not a declaration in favor of wholesale bond purchases by the E.C.B., which a large group of economists advocate as the only way to hold down borrowing costs and save the euro. But the statement suggested that Mr. Coeuré may be more flexible on the issue than Jürgen Stark, a German who is leaving the executive board at the end of the year because of his discomfort with E.C.B. bond market intervention.

Jörg Asmussen, a high-ranking official in the Finance Ministry, will replace Mr. Stark and is seen as less of a hard liner. However, Mr. Asmussen is also close to Jens Weidmann, the president of the German Bundesbank who has been an implacable opponent of stepping up E.C.B. bond purchases.

Mr. Weidmann repeated his opposition to more bond buying Wednesday in a speech in Berlin. “One idea should be dispensed with once and for all, namely the idea of using the printing press to create emergency funds,” he said. “That would endanger the most important foundation of a stable currency: the independence of a central bank focused on price stability.”

Mr. Coeuré replaces Lorenzo Bini Smaghi, an Italian who resigned to make way for a French representative. Members of the executive board are supposed to represent the interests of the euro area and not a particular country. But there is an unwritten rule that the largest countries in the euro area should each have a seat on the executive board.

After Mario Draghi took over as president of the E.C.B. at the beginning of November, Italy was seen as over-represented on the board.

Mr. Coeuré, deputy director-general of the French Treasury, belongs to the inner circle of officials who manage the country’s debt and finances and has also been a key figure behind the scenes at meetings of the Group of 20 countries.

Official interest rates and other key policy decisions are set by the E.C.B. governing council, which consists of the executive board plus heads of the central banks of the 17 euro nations. But the members of the executive board play a particularly influential role, managing E.C.B. operations and proposing policy initiatives.

The E.C.B. governing council has not yet decided what portfolios Mr. Coeuré and Mr. Asmussen will assume when they join the executive board. Mr. Stark has been the E.C.B.’s de facto chief economist, a position both Mr. Coeuré and Mr. Asmussen are likely to covet.

The European Parliament approved Mr. Coeuré by a wide margin.

Liz Alderman contributed reporting from Paris

Article source: http://www.nytimes.com/2011/12/15/business/global/new-ecb-official-may-be-open-to-bond-buying.html?partner=rss&emc=rss

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Greece Sells Stake in Phone Company to Help Close Budget Gap

June 6, 2011 by Leave a Comment

Greece exercised an agreement to sell a 10 percent stake in the state-owned telecommunications company, known as OTE, to Deutsche Telekom for about €400 million, or $585 million. The German company said it would honor the agreement.

While that sum will make only a small dent in Greece’s total debt of €330 billion, Lorenzo Bini Smaghi, a member of the executive board of the European Central Bank, said the country has marketable assets worth €300 billion and is not bankrupt.

“Greece should be considered solvent and should be asked to service its debts,” Mr. Bini Smaghi said Monday, signaling that the E.C.B. remains firmly opposed to any plan to allow Greece to stretch out its debt payments or oblige investors to accept less than full repayment, a so-called haircut.

Speaking in Berlin, Mr. Bini Smaghi offered an unusually detailed and forceful rebuttal to German leaders who are pushing for investors to share the cost of a Greek bailout. Top officials of the E.C.B. usually avoid sparring with elected officials in public, and Mr. Bini Smaghi’s comments illustrated the intensity of the debate on how to keep Greece afloat.

Restructuring of Greek debt would be costly for European taxpayers, reward speculators and discourage Greece from modernizing its economy, Mr. Bini Smaghi said.

“A debt restructuring of a sovereign may have severe implications, both for the debtor’s and the creditor’s economies,” Mr. Bini Smaghi said, according to a text of the speech. “Restructuring should only be the last resort, i.e., when it is clear that the debtor country cannot repay its debts.”

Many economists believe some kind of restructuring is inevitable, and European governments have begun warming to the idea as a way of showing their taxpayers that investors will also have to help pay for Greece.

But Mr. Bini Smaghi contested the idea that “there exists such a thing as an orderly debt restructuring.”

“More often than not, restructurings have been disorderly, harmful and fraught with difficulties,” he said.

Among other catastrophic effects, he said, Greek banks would be devastated and require bailouts that the Greek government would not have the money to finance. The problems would spread to other countries exposed to the Greek economy, and ultimately taxpayers in those countries would suffer, Mr. Bini Smaghi said. Greece would also not have the resources needed to make its economy competitive again.

“Imposing haircuts on private investors can seriously disrupt the financial and real economy of both the debtor and creditor countries,” he said.

German and French banks are the biggest holders of Greek government debt, according to data released Monday by the Bank for International Settlements in Basel, Switzerland. German banks held $22.7 billion of Greek government debt at the end of December, while French banks held $15 billion.

Mr. Bini Smaghi said a default would reward speculators who have bet on Greece’s failure, while punishing investors who have supported the country.

The E.C.B. would itself suffer if Greece defaulted, because since last year it has bought the country’s debt to stabilize bond markets. The bank owns bonds valued at €75 billion from Greece, Ireland, Portugal and possibly other countries.

But the E.C.B.’s exposure is greater than that because it also accepts the bonds from banks in the euro area as collateral for loans carrying an interest rate of 1.25 percent.

On Monday, a British research organization, Open Europe, estimated that the E.C.B.’s total exposure to the Greek government and Greek banks at €190 billion.

Critics say that the E.C.B.’s credibility has suffered because its stake in Greek debt creates a conflict of interest.

“Huge risks have been transferred from struggling governments and banks onto the E.C.B.’s books, with taxpayers as the ultimate guarantor,” said Mats Persson, director of Open Europe, a euro-skeptic organization backed by British business executives.

The E.C.B. declined to comment on Open Europe’s estimate of its Greece exposure. The bank has never disclosed what kind of bonds it has purchased.

The Greek government has begun trying to raise money by selling stakes it owns in companies like OTE, but the privatization drive has encountered fierce resistance from citizens already weary of austerity measures.

Deutsche Telekom already owns a 30 percent stake in OTE, which it bought in 2008. A Telekom spokesman, Andreas Fuchs, said that the price for the 10 percent stake is still being calculated but will be around €400 million.

Article source: http://feeds.nytimes.com/click.phdo?i=0e15914b647c76f92c5ac7218f308ffc

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