Let's start with a conclusion from the famous story by the writer Hans Christian Andersen, “the king is not wearing any clothes”. The “creative” world of finance, the abuses committed by banking bodies, and the excesses of the rating agencies have already been explained or denounced in full. The comments that follow illustrate the current situation and developments, in addition to the decisions taken at the weekend by the Community institutions, the response of the financial markets and the very important project of the European Central bank (ECB). What we learn about the financial world beggars belief. Obviously, the specialists and some of the authorities are aware of the main story. But what about public opinion? And what do European and national parliamentarians have to say about it?
The truth about the rating agencies. We are learning more and more lessons about this affair. These agencies were created for an indispensable task - to inform investors and savers about the situation of those who seek to raise funds from them. This information costs money, which is quite normal. This is such an important task and the demand for it was so enormous that the overall profits of the big US rating agencies doubled between 2002 and 2007 to reach $6 billion a year. The analysis, however, which followed, as well as the hearings organised by the U.S. Senate revealed that these rating agencies are in fact paid by those whom they are rating and that for years they gave Triple A ratings to the most complex and dangerous of financial creations, which provoked the global crisis: after which, at the time of the freefall, these agencies had to downgrade by 93% the products to which they had previously been giving a Triple A rating! The best or the sharpest of their agents went over to the other side and became overpaid traders, bringing with them a dowry of critical knowledge for obtaining the Triple A rating. The interconnection between banking organisations and those judging them was total. At the outset, the rating agencies gathered information on behalf of investors but from the 1970s we gradually shifted towards a model according to which those offering the financial products were paying in order to obtain ratings which would entirely seduce investors!
These indications, and a lot of others, are the result of an official report from the US Senate. This document is 580 pages long and is absolutely horrifying. Nonetheless, we need to recognise that according to certain experts, it is too easy to entirely blame these agencies and avert our eyes from the main culprits - the investment banks and hedge funds, the real organisers behind the speculation.
In this context, we arrive at Mémoires d'un trader (Memories of a Trader), a book that has just been written by Jérôme Kerviel, who is accused of having lost the Société générale €4.9 billion. The former trader explains that the bank's bosses knew all about his operations: “I am just someone who committed mistakes in a bank that had for a long time acknowledged them because it was making a profit out of them”. The bank denies his affirmations. His trial will take place in Paris on 9-23 June and we will have to wait and see what conclusions the judges will make.
Can the eurozone be blown apart? The hypothesis of the eurozone shattering into smithereens has been proclaimed and received a lot of comment, and certain quarters would be very pleased to see this happen. Millions of contracts valued in euros would have to be processed in another currency: the European economy is much more tied up in this than would appear on the surface. The merry dance of national devaluations would begin again and the German currency would appreciate and make it much more difficult for it to export its products - there would be no winners. And what would happen to Greece if the country left the zone and had to severely devalue its former currency? There would be effects in the short term because Greek imports would become increasingly expensive and the quality of life would fall radically. The debt in euro, however, would have to be paid and this would have a twofold cost to it. Let's not forget that the banks hold large quantities of bonds from the Greek Treasury.
Returning to Jacques Delors. What are the remedies? It is astonishing to observe how many political leaders and commentators are recapturing practically word for word what Jacques Delors said at the very beginning, as if they had discovered something new - the need to find a balance between the two legs of Economic and Monetary Union, namely economic governance. Added to all this, is the creation of Eurobonds, which will enable the EU to raise funds on the financial markets itself, in conditions that certain member states can only dream about. Jacques Delors has recently indicated that the first time he spoke about all this was in 1993 in his White Paper!
Tomorrow, this column will return to his passionate and at the same time practical appeal to “save Europe” (which, in his opinion, is now facing “its most important test”), as well as other significant positive and negative reactions that deserve comment.
(F.R./transl.fl)