In favour of a global reflection. The Parmalat affair should give rise to a reflection going beyond not only the specific case of the Italian firm, but also thoughts about checks on companies' books and banking activities. What, in my view, Europe needs is a joint reflection on the importance of economic activity, according top priority to the creation of goods and services of use to the community in such a way as to stem the unwarranted prestige which still surrounds the excesses of "creative accounting".
When I was a child growing up in Italy, I remember that the economic models young people aspired to imitate were the major creators of industrial activity: the humble handworker/technician who invented the Ferrari, or the lawyer Agnelli who raised his family business to the level of the greatest automotive marques in the world, and others. Then, the fashions changed: under impetus from America and London, the new models became those of the wizards of finance. I'm not talking about the bankers who played a vital part in the affirmation of our liberal economy, but those who are able to manoeuvre money by speculating on exchange rates or price fluctuations for raw materials, without creating anything tangible or bringing anything to the community.
A simple story. The Parmalat story can be summarised very simply. A businessman from an area which is world famous for its food specialities (who hasn't heard of Parma ham or Parmesan cheese?) set up a business, which quickly became the leader in its sector (milk and derivatives), with equally prestigious offshoots for fruit juices and other specialities. The positive financial results prompted its managers to get into "creative accounting"; under the momentum of banks and other financial institutions there developed a varying and soon frenetic ballet of setting up companies in financial paradise, the movement of dizzying levels of capital and growing and uncontrolled appeals to international private savings. Little by little, the managers lost their grip on these activities, which polluted the books of the healthy producing companies, and management slid into illegality and thence into financial crime, their books increasingly false, swollen by credits and imaginary assets and operations which did not exist. Until the bubble of hot air and lies burst.
Should the ECB have new responsibilities? These events raise many serious questions. Why did the different degrees of control not work? Why did the auditing companies not blow the whistle on blatant irregularities and obvious falsehoods? Why did banks continue to launch bonds with no real cover onto the international financial markets, recommending them to their clients? Analysis is underway, the bodies in question are looking into it, the Italian courts have taken the case on and many people (including the founder and big boss of the company) are in prison. At European level, the relevant legislation is being shored up and other Commission initiatives have been announced. The scandal should lead to reactions in the EU equally swift and hard-hitting as those which followed the Enron affair in the US.
The premise has been forwarded of entrusting the European Central Bank (ECB) with the responsibility for banking inspections in the EU, which would be possible under article 105 of paragraph 6 of the Treaty, with no need to modify it. The national central banks would not be relieved of their duties, because they are overwhelmingly in the majority in the ECB's board, nor would their specific experience be wasted; it would, on the contrary, be put to better use, allowing monitoring at European level within a field where national boundaries are no longer relevant because the financial markets have become European. In some Member States, this solution would solve the problem of the autonomy of the control body from the political authorities.
Is this just pie in the sky, or does it contain real possibilities?
Should derived banking products be proscribed? But I feel the reflection we need should be broader. Reinforcing and improving monitoring, keeping a check on these financial paradises, rigorously applying the law on those responsible for irregularities, all this is clearly needed. But at the same time, we should condemn the "creative accounting" category which produces nothing for the community, lines the pockets of the dishonest,
whilst bankrupting savers. Even George Soros, who has apparently repented for his past exploits, has now roundly criticised the excesses of "creative accounting", and is making the efforts to put considerable chunks of the money he has built up into useful projects. First and foremost, the mythical aura enjoyed by the so-called finance wizards should be destroyed; their prestige is entirely without justification and has given birth to many sorcerers' apprentices (see Wolfgang Goethe, Paul Dukas and Walt Disney in "Fantasia", who have preserved these terms), which have themselves brought about so many disasters. My first instinct would be to suggest that the most outlandish banking "derivative products" be banned outright. For example, speculation on forthcoming fluctuations in raw material prices should only be allowed if the sums involved are actually available at the time the operation is concluded. My suggestions are probably naïve and somewhat simplistic. But even accredited financial experts believe that "creative accounting" is now going too far and that certain "derivative products", such as "collateral debt obligation", are practically impenetrable, not only for amateurs like myself, but even for the operators.
No protection for financial speculation. It is well known that most of the funds which disappeared into the Parmalat gulf were reaped outside of Italy, so much so that it was written that this case was "born of major international finance". The attempts by the financial press, especially in London, to put pressure on the Italian State to take on board, directly or indirectly, the financial consequences of the disaster are unjustified, even though they are accompanied by threatening forecasts of the possible repercussions on the assets of the Italian treasury. The most serious observers feel that Italy should accept the risk of these repercussions, including consequences for the State's future issuing onto the international markets, rather than committing itself to cover, in one way or another, the losses of major international finance (which continued to speculate, up to the last minute, on Parmalat bonds, bringing the company into disaster, at the cost of its savers). Even the Italian banks involved must accept, with no State intervention, the consequences of their behaviour.
State aid: the European Commission must be strict. I feel that the European Commission should under no circumstances authorise State aid to cover the losses of the group resulting from its financial operations. Intervention aiming, if possible, to save the company's industrial structure could be justified because the products are of good quality and consumers have kept their confidence in them; it is up to the Commission to evaluate the plans and report back. But neither the purely financial losses resulting from operations advised and encouraged by banks (which pocket considerable amounts of commission), nor the effects of "mis-accounting" tolerated by international companies responsible for conducting audits should in any way be covered by public funds. Whatever their attitudes, "the old wolves of international finance should not be seen as lambs, capable of going from proud dignity to threats to lamentations", wrote the economist Marcello de Cecco. It is clearly not a question of devaluing the role played by banks in our economies, which is vital in taking investors' money and directing it to productive investments; but the so-called "financial wizards" should be unmasked, and the role of derivative banking products reduced, as they are largely pure speculation.
Industrial policy is directly involved. The above considerations are to be found, in a way, in the enormous field that is European industrial policy, and measures aiming to face up to the risks of the disindustrialisation of Europe. The European Commission has already produced an initial document on this, as we know, and last December's European Council asked it to present a specific report on disindustrialisation within the Union by the end of this semester, stating that it is "aware of the importance of the industrial sector for the competitiveness of the European economy, and giving the objectives laid down in the Lisbon strategy" (paragraph 10 of the Presidency conclusions, reproduced in our special bulletin of 14 December). It seems clear to me that the action in favour of European industry involves, alongside the re-evaluation of the production of genuine goods and services, the action aiming to unveil the myth of "creative accounting". Those who recommend a European industrial policy- and they are many- must not overlook this aspect. (F.R.)