Would you bank on them?

Why we shouldn’t trust the EU’s financial “wise men”

Profiles

Jacques de Larosière
Callum McCarthy
Otmar Issing
Leszek Balcerowicz
Onno Ruding
Rainer Masera
José Pérez Fernández
Lars Nyberg


Authors:

Kenneth Haar
Andy Rowell
Yiorgos Vassalos


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Would you bank on them? Why we shouldn’t trust the EU’s financial “wise men” Would you bank on them? Why we shouldn’t trust the EU’s financial “wise men”
Executive Summary


The financial crisis has unleashed a huge debate on the state of the global financial system.
As politicians examine fiscal solutions and regulatory reforms, the big question is how
supervision and regulation should be changed to avoid a repetition of the present meltdown.

In the EU, the Commission and the Council has set up a High Level Group of eight experts to
advise them on how to reform the financial system in terms of supervision and regulation.
Given the now obvious failings of the current system and individual financial sector
institutions, it would seem prudent to seek advice from a diversity of sources, including from
independent experts who had expressed concern about the flaws in the current financial
architecture.

However, the group - named the de Larosière Group after its chairman - is comprised of
people closely linked to the financial industry, or to institutions that, to a greater or lesser
extent, have been implicated in the crisis. Four members of the group are closely linked to
giant financial corporations that have all played a major role in the current financial crisis, a
fifth was the head of the UK Financial Services Authority that completely failed in its
supervision of bust bank Northern Rock, a sixth is a fierce enemy of regulation and a seventh
works for a company whose clients include major banks.

Beyond this, some members of the Group failed to warn of the impending financial crisis and
lately they have even played down its extent and severity. The majority have expressed strong
support for a deregulated financial sector and can be deemed to have supported hard-line,
neo-liberal policies that arguably created the financial crisis. They are the very kind of people
who got us in to the mess. The eight members are:

Jacques de Larosière: Co-chair of the financial sector lobby organization, Eurofi and until
recently, adviser to the French bank BNP Paribas for a decade
Rainer Masera: Former Managing Director of a European branch of Lehman Brothers,
which went bankrupt after heavy losses on subprime loans
Onno Ruding: An adviser to Citigroup, owners of Citibank that received billions of US
dollars in a bail-out
Otmar Issing: Adviser to the financial giant Goldman Sachs
Callum McCarthy: Former head of the UK Financial Services Authority, accused of
systematically failing in its duty over bust British bank, Northern Rock
Leszek Balcerowicz: A strident advocate of deregulation
José Pérez Fernández: Works for a financial market intelligence company, which counts
big banks as clients
Lars Nyberg: A career banker, now vice chair of the Swedish National Bank.

That such a group has been selected to play a key role in the EU debate on the response to the
crisis is deeply worrying. It is unlikely to open up any debate on real alternatives to the
present financial architecture.

Policy capture by vested interests results in flawed policies and regulations. Europe’s leaders
must end the privileged access to decision makers enjoyed by the powerful finance sector
lobby. At the same time, they must also curb the power that the private sector holds over the
political process in the EU and make decision-making democratically accountable.

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Would you bank on them? Why we shouldn’t trust the EU’s financial “wise men”
Introduction


“In the case of legislators, I am convinced that over the years there has been too

much ‘regulatory capture’ by the sell side of the financial services market: Their

lobbies have been strong and powerful.”

Charlie McCreevy, Commissioner for Single Market and Services, February 2009.1

Throughout Europe millions of ordinary workers are asking themselves if they will be out of a job
in the near future. The economic crisis is now impacting on peoples’ livelihoods across the EU. As
politicians, governments and officials struggle to respond, they are asking how the crisis could have
been avoided and how to escape what is now seen as the worst recession for over 50 years.

The answer to a question, inevitably depends on who you ask. In the case of the financial crisis, the
Commission and the European Council have decided to seek advice from a group of eight financial
experts. These eight are members of what is known as a High Level Group, which was approved by
the Council in October on the recommendation of the Commission. This High Level Group on EU
financial supervision, often referred to as the de Larosière Group, is tasked with proposing a
response to the crisis before the European Council’s Spring Summit in March.2

The High Level Group will exert significant influence on the international response to the crisis.
According to the President of the European Commission José Manuel Barroso, the Group’s
recommendations “will help us to develop our proposals for shaping global financial markets”.3
Even before seeing the group’s conclusions, Commissioner McCreevy has stated that the
recommendations will form the basis of a Communication, to be discussed at the Spring European
Council.4 This will happen just days before the crucial G20 summit on the financial crisis in London
in April, attended by new US President Barack Obama.

This is a group with huge responsibility and an important mandate. Consequently one would expect
the Council and the Commission to have shown the utmost care when selecting the members. This
is particularly important given the recent acknowledgment by the Commission that there has been
too much “regulatory capture” by the financial industry and that this is part of the root of the crisis.5

McCreevy has also conceded that the Commission must be more “objective”. 6 Given his comments
and the severity of the present crisis, the public could expect the Commission to have consulted a
broad range of independent experts, including representatives from all interested stakeholders and a
variety of political if not economic views.

For this report, we examined whether the group’s members represent a range of stakeholders, or
whether they are firmly tied to the financial services industry. We also investigated the diversity of
opinion among the members. This report outlines these views, examines the institutions they are
connected to and what role these organizations are playing or have played in the current crisis.

In our view, the composition of the group is astonishing. It is hard to imagine a clearer example of
privileged access to decision-makers by vested interests. The report’s conclusion stresses a point
repeatedly made by transparency campaigners over the years: privileged access by corporations
should end and a new open culture of expert advice introduced.

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Would you bank on them? Why we shouldn’t trust the EU’s financial “wise men”
Jacques de Larosière

•
Senior advocate of “common sense” over regulation
•
Co-Chair of banking industry lobby group
•
10 years as an advisor to BNP Paribas
Jacques de Larosière is a highly regarded senior figure within the banking
industry. He was Managing Director of the International Monetary Fund
(IMF) in the 1980s. He was then Governor of the Bank of France. During
the 1990s he was head of the European Bank of Reconstruction and
Development (EBRD), which was established to support economic
reforms in Central and Eastern Europe, and is widely seen as a driver of
privatization. He resigned from the EBRD in 1998.

From 1998 until July 2008, he advised Michel Pébereau, the Chairman of BNP Paribas, one of
Europe’s major banks. BNP Paribas was the first European bank to sound the alarm in August
2007. The bank froze €1.6 billion, citing uncertainty as the reason. BNP Paribas said it was unable
to assess the value of the investments in asset-backed securities and barred investors from cashing
in on them. However, BNP Paribas lost comparatively little compared to its competitors and is in a
strong position today. BNP Paribas may be the largest deposit bank in Europe and, consequently,
has a very high stake in EU decision-making.

No more regulation, just “more common sense”

Jacques de Larosière is also the Co-Chair of Eurofi, a Paris-based think tank and lobby group,
which is “dedicated to the integration and efficiency of EU Financial, Insurance and Banking
Services markets”.7

Eurofi was set up in 2000 “with the aim of “Don’t jump to hasty
contributing to the convergence of views conclusions... Many of the between practitioners and public institutions
regarding the integration of the European required improvements
capital market.” Its membership includes

should be the result of

many key players in the financial sector:
Axa, Aviva, BNP Paribas, Cassa Depositi E better standards and
Prestiti, Caisse des Dépôts et Consignations, principles agreed upon Caisse Nationale des Caisses d’Epargne,
CNP Assurances, Citigroup, Crédit Agricole, by the industry.”
Deutsche Bank, NYSE Euronext, Goldman
Sachs, JP Morgan Chase, La Banque Jacques de Larosière, March 2008
Postale, Société Générale, and the European
Investment Bank. 8

In March 2008, de Larosière wrote an article posted on the website of Eurofi on “The present
financial crisis, a tentative list of possible avenues”. Included in his recommendations were that
“banks should give priority to risk assessment and management”; that “the ‘parallel banking
system’ should be required to abide by minimum reporting obligations”; and that “the positive
aspects of securitization, which has an important role to play, need to be strengthened”. His final
note warns against “jumping to hasty conclusions”.

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Would you bank on them? Why we shouldn’t trust the EU’s financial “wise men”
By his own admission, most of his recommendations “do not require more regulation”. Instead,
what is needed is a “more common sense in the implementation of existing rules”. “Many of the
required improvements” he says, “should be the result of better standards and principles agreed
upon by the industry” (emphasis added).9

Jacques de Larosière’s statements show a clear preference for “self-regulation” of financial services
institutions. This is a very different message from what most independent analysts of the financial
crisis are saying, which is that the lack of oversight and control on banks contributed significantly
to the current crisis. His thinking is similar to the major banks in Europe, one of which, BNP
Paribas, he has had a long-standing relationship with.

Callum McCarthy


•
Chairman of the UK Financial Services Authority, 2003 –
2008
•
Presided over FSA’s “systematic failure of duty” over
recently nationalized UK bank, Northern Rock
•
Failed to see risky business models
•
Previously worked for banks such as Barclays
Sir Callum McCarthy was Chairman of the UK financial regulator, the
Financial Services Authority (FSA), from September 2003 to September
2008. He previously held senior positions in Barclays Bank and the private
bank Kleinwort Benson, as well the UK Department for Trade and Industry.

Northern Rock: “not just sleeping, you were comatose”

In early 2007 as the financial crisis began to intensify, the FSA, under McCarthy, was still arguing
for “light touch” regulation for hedge funds, seen as a key driver of financial instability.10 In autumn
2007, McCarthy said the growing calls for increased regulation of the financial services industry
were a “mad dog” reaction.11 By then the European Central Bank had already pumped €95billion
into the market to improve liquidity and the UK had experienced a run on a bank, Northern Rock.

Early in the crisis the FSA reassured people that Northern Rock was “solvent.”12 Economics
journalist Alex Brummer, author of The Crunch, noted that the FSA’s “actions suggested it hadn’t a
clue about the weakness of the Rock’s securitization model.”13

The FSA was widely seen as the regulatory authority with the most to blame for allowing Northern
Rock to fail. It was accused by the British MP John McFall, head of the influential Treasury
Select Committee, of “not just sleeping, you were comatose” over Northern Rock.14 The
Treasury Committee’s report on the scandal determined that the FSA had “systematically failed in
its duty.” “The failure of Northern Rock, while a failure of its own board, was also a failure of its
regulator,” it said.15

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Would you bank on them? Why we shouldn’t trust the EU’s financial “wise men”
McCarthy’s refusal to accept responsibility for the FSA’s role in Northern Rock’s downfall angered
parliamentarians. One MP on the Committee, Sion Simon, told McCarthy: “You are the Sugar Ray
Leonard of the financial services sector; a world-class ducker and diver, bobber and weaver.”16

Silencing critics, failing to see the risks

When a senior UK politician, Liberal Democrat

“The failure of

Treasury spokesperson Vince Cable, raised concerns
about Northern Rock, it was reported that McCarthy Northern Rock, while
had tried to “gag” him. Cable said: “Sir Callum

a failure of its own

said I was scaremongering, that there was no problem
with the bank and that it had a good loan book, and board, was also a
any problems were due to international markets

failure of its regulator.”

beyond its control.”17

In February 2009, McCarthy’s ex-Deputy Chairman, UK Treasury Select Committee
Sir James Crosby, resigned from the FSA after report on Northern Rock
allegations that he had helped silence a whistleblower
from within HBOS, one of Britain’s largest
banks, who had repeatedly warned about the
excessive risk being undertaken by the bank. 18

In fact, the FSA failed to examine the risky nature of the whole banking sector. McCarthy’s
replacement at the FSA, Lord Turner, has now admitted that the FSA and other regulators had
failed to see that by 2004 the banking system was moving in a direction that created a “large
systemic risk”. “With hindsight” said Turner “the FSA was focused too much on individual
institutions .... and not adequately focused on the totality of the systemic risks across the whole
system, and whether there were entire business models, entire ways of operating, that were risky.”19

Given, McCarthy’s controversial background, it is surprising that he was picked as the only
member of the group with recent experience in banking supervision.

Otmar Issing


•
Orthodox monetarist views
•
Advisor to US giant Goldman Sachs, which has been
short-selling during the crisis
Otmar Issing has been called “Europe’s High Priest of Monetary
Orthodoxy”20 and is seen as a die-hard monetarist. After a career at the
German national bank, the Bundesbank, he joined the European Central
Bank (ECB) and was one of the key architects of the Euro. He served for
eight years on the ECB’s Executive Board and Governing Council, and as
the Bank’s chief economist.21


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Would you bank on them? Why we shouldn’t trust the EU’s financial “wise men”
Like Leszek Balcerowicz (page 9), Otmar Issing is a member of the board of trustees of the German
Friedrich August von Hayek Foundation that promotes a neoliberal economic and social order
(Hayek is regarded as one of the founding fathers of neoliberalism).22 In 2003 Issing won the
Foundation’s International Prize along with ex-British Prime Minister Margaret Thatcher. 23 He is
also the president of the Center for Financial Studies, a research institute affiliated with the
University of Frankfurt. It is financed by the ”Gesellschaft für Kapitalmarktforschung” (Society for
Capital Market Research), which comprises of more than 80 banks, insurance companies,
consulting firms and commercial enterprises.24

Wall Street’s powerhouse, inside Europe

Issing retired from the ECB in June 2006. Four months later he was advising the giant investment
bank Goldman Sachs. Normally the ECB would require a 12 month “cooling-off period” to avoid
conflicts of interests, but in this case it accepted Issing’s move on the grounds that his job would be
a “loose advisory position” unconnected to
the daily business of the finance house.25

“With the nomination

It has been pointed out that Issing’s
appointment on the de Larosière panel gives to the group of Otmar
Goldman Sachs a competitive advantage in

Issing, Goldman Sachs

Europe. Financial analyst Klaus C. Engelen,
a contributing editor to The International landed a strategic coup.”
Economy, a specialized quarterly magazine
covering global financial policy, argues


Financial analyst Klaus Engelen on the de

that “with the nomination to the group of

Larosière Group

Otmar Issing, Goldman Sachs landed a
strategic coup”.26

Engelen also notes Issing’s other role as an adviser to German Chancellor Angela Merkel on the
crisis, as part of a similar “expert group”. He says: “Wall Street’s powerhouse now has its own man
in the most important new European expert panels - a nightmare for main rival Deutsche Bank.”27

Did Goldman Sachs’ tactics contribute to the crisis?

Goldman Sachs’ role in the subprime crisis is markedly different from other investment banks. By
February 2007 Goldman Sachs was “poised to profit from the subprime meltdown”.28 The company
started selling the securities related to subprime loans in a move called “short-selling”, by which the
losses incurred through the falling prices on subprime loans was more than outweighed by the bet.29

Short-selling became a controversial issue in 2008 when it was used by many investors to make a
quick profit. The contribution short-selling was making to financial instability prompted several
countries to temporarily ban it. Even so, when a German expert group, under Issing’s leadership,
came up with its first proposals in November 2008, it ignored the issue of short-selling, even though
it is seen by many as a key contributing factor to the current crisis.30

The issue of short-selling might present a potential conflict of interest for Issing and his association
with Goldman Sachs in the de Larosière Group’s discussions.

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Would you bank on them? Why we shouldn’t trust the EU’s financial “wise men”
Leszek Balcerowicz

•
A free-market champion and advocate of deregulation
•
Long associated with US and EU free-market / libertarian think
tanks
Leszek Balcerowicz is a Polish economist and former chairman of the
National Bank of Poland. He is chair of the Brussels-based think tank
Bruegel, whose stated aim is “to contribute to the quality of economic
policymaking in Europe”. Its corporate members include Deutsche Bank,
Goldman Sachs, Unicredit and Fortis (one of the first European banks to
seek a state bail-out). As of February 2008, Bruegel had not registered on
the Commission’s register of lobby organizations. 31

Architect of the Polish Economy

As Poland’s Finance Minister in the early 1990s, Balcerowicz steered the country from a state
planned economy to a capitalist free market economy, with what is known as the “Balcerowicz
Plan” or, more commonly, “shock therapy”.32

His economic plan used “recipes that sound now like a caricature of Thatcherism: tight monetary
policy, free prices, privatization, cuts in the state budget”, wrote The Times in 2006.33 At the time
Balcerowicz conceded “that as a result of his plan the real income of Poles may fall by 20 per cent
next year, industrial production may drop by 5 per cent and hundreds of thousands of workers may
be laid off”.34 Poland’s free market capitalism also threw up “scandal after financial scandal”. As
the Washington Post wrote: “unscrupulous entrepreneurs profited from loopholes, corrupted
politicians, and made off with billions”.35

“Free market capitalism provides the greatest security”

The European Enterprise Institute, a rightwing think in Brussels gave Balcerowicz the award for
“The Greatest European Reformer 2007”. The EEI argue that, to a large extent, the financial crisis
has been created by government intervention, and that the world needs freer financial markets and
less government intervention.36

The same year, Balcerowicz was dubbed “a free-market champion” by The Wall Street Journal.37
He is “one of the great heroes of liberalism in the world” according to Ed Crane, founder and
President of the think tank, the Cato Institute, a libertarian think tank that promotes deregulated
markets and limited government, with which Balcerowicz has had a long association.

For example, in April 2007, the Washington Post
noted that “Balcerowicz was at the Cato Institute in “One of the great
Washington doing what he likes best -spreading
the gospel of free markets” and outlining the heroes of liberalism
“intellectual arguments for deregulation, privatization in the world.”
and lower taxes”.38

Ed Crane, founder and President of

These arguments have proved disastrously wrong. In

the Cato Institute

March 2007 Cato senior fellow, Daniel J. Mitchell “a
top expert on tax reform” wrote: “Listen up, Gordon

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Would you bank on them? Why we shouldn’t trust the EU’s financial “wise men”
Brown and George Osborne [UK Conservative shadow chancellor]… Tax reform and economic
liberalization have helped Iceland prosper. Let’s hope that other industrial nations …. will learn
from Iceland’s success”.39 Eighteen months later, Iceland’s banking system collapsed, forcing the
government’s resignation. It became the first Western European nation for 30 years to get an IMF
loan.

Balcerowicz is also associated with the American Enterprise Institute (AEI), a neo-conservative
think tank.40 In one speech he said that it was “the introduction of free market capitalism that
provides the greatest security for democracy in the long run”, without which “civil society
degenerates into interest groups which endanger economic growth and poison public life.”41

Balcerowicz brings to the group a dogged promotion of deregulation backed by well organized
neoliberal networks of intellectuals and think tanks.42

Onno Ruding


•
Former Vice Chairman of Citicorp, now on Citigroup’s
International Advisory Committee
•
Warns against “a backlash of aggressive regulation”
Ruding’s career has seen him move in and out of the public and private
sectors. He worked for the International Monetary Fund and Dutch bank
AMRO before entering politics in the early 1980s, becoming Minister of
Finance under Premier Ruud Lubbers. Lubbers’ government was famed for
its deregulation and privatization agenda, and Ruding used his tenure to
draft the early liberalization of the financial sector in the Netherlands.


Throughout the 1990s, Ruding worked for
Citicorp, now Citigroup, becoming Vice
Chairman of Citibank in 1992.43 In the “Problems will come to
early nineties he also acted as a lobbyist,

light in the United States and

for Dutch and European employers
especially, on issues of corporate taxation. maybe also in Germany. The
He retired in 2003, although he remains on

Netherlands is expected to

Citigroup’s International Advisory
Committee.44 He is also Chairman of the remain out of that. This is
Board of the Centre for European Policy

partly thanks to our

Studies (CEPS) one of the most important
neo-liberal think tanks in Brussels.45 supervisory structure.”


For many years Citigroup was the world’s Onno Ruding on the financial crisis,
largest bank (by revenue). However, by August 2007
November 2008, it was forced to accept a
bail out from the American government,
which provided it with $20 billion in
additional capital whilst guaranteeing a
further $306 billion of Citigroup’s assets.46


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Would you bank on them? Why we shouldn’t trust the EU’s financial “wise men”
Warning against a backlash of aggressive regulation

In the same month that Citigroup was bailed out by American taxpayers, Ruding made a speech in
which he defended liberalization saying that: “Since 1980, the world has experienced a wave of
deregulation and liberalization, particularly for financial markets and institutions. These
developments have contributed substantially to economic growth… We should take the needed
corrective actions to curtail this excessive use, but we should also avoid overreacting by a backlash
of aggressive regulation or re-regulation”.47

Ruding’s failure to predict how far and wide the financial crisis would extend was proved wrong in
the Netherlands. It contrasts with the view of others who foresaw the scale of the crisis, but who are
absent from the de Larosière Group.

Rainer Masera


•
Head of Lehman Brothers FIG, Italy. Parent company filed
for bankruptcy in 2008
•
Long time board member of the European Investment Bank,
criticized for its lack of accountability
Rainer Masera is an Italian banker. He has been on the board of the
European Investment Bank, the long-term lending institution for the EU, for
over a decade. He was formerly Central Director at the Bank of Italy, head
of the Italian Sanpaolo IMI banking group, and chairman of the former
Italian private bank, Banca Fideuram.48


Lehman Brothers’ catastrophic impact on confidence

From May 2007, Masera was also Managing Director and Chairman of Lehman Brothers’ Financial
Institutions Group in Italy.49 In September 2008 parent company Lehman Brothers filed for
bankruptcy, sending shock waves through the financial system. The bank was very exposed to
unsecured mortgages in the US subprime market, where it was said to be a “dominant force”. As
one US magazine reported: “Lehman’s crown jewel was its real-estate businesses”. However, “real
estate was where all the problems were”.50

The International Economy, noted that “The nomination to the [de Larosière] group of Rainer
Masera, a former managing director of Lehman Brothers which collapsed recently causing terrible
losses to European institutions and investors, met with sharp criticism.”51

European Investment Bank’s lack of accountability

During the 10 year period that Masera has been on the board of the European Investment Bank
(EIB), it has been the subject of much criticism: for its lack of transparency, accountability and the
potential conflicts of interests of some of its directors.52

Masera was one of those criticized in 2004 for his potential conflict of interest. At the time he was
President of the Italian bank Sanpaolo IMI which received more than €800million in loans (not
including loans to subsidiaries) between 1995 and 2004. Sanpaolo IMI was also the majority
shareholder in two other EIB intermediary banks: Slovenia’s Koper and Hungary’s Inter-Europa.
An article in EuroMoney noted, under the headline ‘Doubts about transparency’ that “Directors

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Would you bank on them? Why we shouldn’t trust the EU’s financial “wise men”
have to declare their other directorships internally and abstain from discussing any matter that might
raise conflicts of interest for them. But potential conflicts have not been made public.”53

The problems at EIB did not escape the attention of Europe’s politicians. In 2004, Spanish MEP
Mónica Ridruejo prepared a controversial draft report for the European Parliament’s Committee on
Economic and Monetary Affairs on the activity of the EIB. It noted that the bank “failed to comply
with good governance rules” and criticized its policy on conflicts of interest and risk management.54

BankWatch has argued that the “EIB has shown a notable disregard for addressing a number of
important policy issues”, including transparency and accountability.55 Friends of the Earth called
EIB “a ghost bank, which is in no way properly accountable to the people who fund it.”56

Until recently Masera held a senior position at Lehman’s, which encouraged unsustainable risk
taking. The same concerns that have dogged the EIB, with which he has been closely associated for
a decade - over transparency and accountability - are now being directed at the de Larosière Group.

José Pérez Fernández


•
President of a financial market intelligence company, which counts big banks as
clients. He also previously worked for BBVA
José Pérez Fernández has spent most of his career working for Banco de España, the national bank
of Spain.57 He then moved to the private sector to Banco Bilbao Vizcaya Argentaria (BBVA) 58
where he was Managing Director.59

He is currently the chairman of InterMoney, a web-based service specializing in currencies and
bonds.60 InterMoney is a project of IDEAglobal which is “a leading supplier of independent and
impartial advice” to banks. It claims that “of the 50 largest financial institutions as ranked by
Euromoney, all but four are clients of IDEAglobal”.61

Lars Nyberg


•
Warns against becoming “overzealous about regulation”
•
Opposed to regulation of hedge funds, which he thinks didn’t contribute to the
crisis
•
Worked for decades in the private banking sector
Lars Nyberg spent two decades in the private financial sector before becoming Deputy Governor of
the Swedish central bank, Riksbanken in 1999.

Nyberg acknowledges that the present crisis calls for further regulation, but warns repeatedly
against becoming “overzealous about regulation”.62 Lately he has suggested that there’s a need for
more regulation on investment banks, but in January 2008 he also denied the need for the regulation
of hedge funds.63 He has been and remains fundamentally favorable to the creation of very
complicated financial products, but emphasizes the need for transparency and “clear and continuous
pricing information.”64

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Would you bank on them? Why we shouldn’t trust the EU’s financial “wise men”
Conclusion


An economic recession on the scale predicted should lead to radical and comprehensive reform of
the financial industry. Certain regulations, structures and procedures need to be put in place to
ensure that a crisis of this kind never happens again. To identify such reforms, Europe’s leaders
must not just listen to the views of those closely associated with the present system, or with the
financial giants whose interests have generally been accommodated in the past.

In these terms, the de Larosière Group is clearly a failure. It seems designed to produce a result that
will be no real challenge to the present financial architecture. Four members are closely linked to
giant financial corporations, such as Goldman Sachs, BNP, Lehman Brothers and Citigroup. A fifth
was the head of the UK Financial Services Authority that completely failed in its supervision of
Northern Rock. A sixth member is a fierce enemy of regulation, and a seventh works for a company
that relies on banks. On top of this, most of the members of the Group support strong monetarist,
neoliberal and de-regulatory policies that many analysts are saying created the financial crisis.

There are numerous reforming ideas and proposals being discussed by different groups in society
that cannot be expected to be addressed by this group because of its composition. For instance, there
is the strong debate in the European Parliament on the regulation of capital and equity funds, which
could have been raised had an MEPs or independent experts been on the Group. Other ideas include
the various proposals for supervision of the financial sector put forward by UNI-Finance65, a trade
union body in the financial sector. The views of consumer organizations are also absent.

The Commission’s own codes of conduct hold it responsible for ensuring broad representation in
expert groups. However, this is far from standard practice.66 As recent research by Friends of the
Earth Europe has shown, the de Larosière Group is typical of the general trend of corporate
dominance in the High Level Groups set up by the Commission.67

With the de Larosière Group, the Commission has repeated the mistakes of the past. It has set up a
High Level Group dominated by the very kind of people that created the crisis in the first place. It
could have taken the opportunity to consult widely to try and create a more democratic and stable
financial system. But instead of a broader public policy debate, the Commission has again gone for
a process ‘behind closed doors’. This puts policy-making on a key issue for all Europeans into the
hands of a small group of experts with strong connections to the financial industry. The de
Larosière Group highlights once again the vice-like grip the financial lobby has on decision making
in the European Union.68

The fact that such a group has been selected to play a key role in the EU debate on the response to
the crisis is deeply worrying. Policy capture by vested interests results in flawed policies and
regulations. It is time to end the privileged access to decision makers enjoyed by the powerful
financial lobby, and more generally to curb the power corporations sector hold over the political
process in the European Union.

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Would you bank on them? Why we shouldn’t trust the EU’s financial “wise men”
References


1



1 Charlie McCreevy, European Commissioner for Internal Market and Services, Speech at the Institute of International
and European Affairs, Dublin, February 9, 2009.
2 Mandate of the group, which has been interpreted broadly and covers both supervision and regulation, can be seen at
the Commissions website; ‘High Level Group on EU Financial Supervision to hold its first meeting on 12 November’,
press release from the European Commission, November 11, 2008.
3 J. M. Barroso, It is possible to overcome this difficult situation, Government of the Czech Republic, Press Advisories,
February 12, 2009.
4 Charlie McCreevy, Financial Markets & Economic Recovery - Restoring Confidence and responding to public
concerns, 7th Annual Financial Services Conference Brussels, January 27, 2009.


Charlie McCreevy, European Commissioner for Internal Market and Services, Speech at the Institute of International
and European Affairs, Dublin, February 9, 2009.
6 Charlie McCreevy, Financial Markets & Economic Recovery - Restoring Confidence and responding to public
concerns, 7th Annual Financial Services Conference Brussels, January 27, 2009.
7 Eurofi website -http://www.eurofi.net/who.php
8 Eurofi website -http://www.eurofi.net/who.php
9 Jacques de Larosière, The present financial crisis : Why has the system derailed? Some thoughts on securitization,
March, 2008.

Melanie Wold, Letting hedge funds be hedge funds: FSA tries to show rest of Europe that a light touch is enough,
Securities Industry News, February 12, 2007.
11 Sean O’Grady, FSA chief warns clamour for regulation is ‘mad dog’ reaction, The Independent, October 22, 2007,
p40.12
Alex Brummer, “Watchdog that failed to bark”, Daily Mail, November 21, 2007, p75.
13 Alex Brummer, “Watchdog that failed to bark”, Daily Mail, November 21, 2007, p75.
14 Richard Northedge, The rise of The rise of John McFall, credit crisis key figure, The Sunday Telegraph, December
16, 2007, p6; Sam Fleming, City interview: the TSE’s John McFall, Daily Mail, August 7, 2008, p74.

Christine Seib, MPs demand new regulator as FSA stands condemned, The Times, January 26, 2008, p52.
16 Hansard, Uncorrected Transcript of Oral Evidence to be Published as HC 999-ii, House of Commons, Minutes of
Evidence, Taken before Treasury committee, Financial Stability and Transparency, October 9, 2007.
17
Financial Watchdog boss ‘tried to gag MP’ over Rock crisis alert, Mail on Sunday, February 24, 2008, Section FB,
p2.18 Nick Mathiason Heather Connon, Richard Wachman, Banking’s Big question: why didn’t anyone stop them?, The
Observer, Business Section, 15 February, 2009, p4-5.
19Terry Macalister, City watchdog chief admits regulators failed to spot looming financial disaster, The Guardian, 16
February, 2009.

See for instance: Outgoing Euro chief warns of tensions, Daily Telegraph, May 31, 2006.
21 Otmar Issing’s intervention at the conference Lessons from the Subprime Crisis at the Cato Institute – an institute
closely connected to the ideas of Milton Friedman, November 19, 2008.
22 See the website of the foundation: www.hayek-stiftung.de/115.html.
23 Friedrich-August-von-Hayek-Foundation, Recipients of the Friedrich-August-von-Hayek-Foundation, Press Release,
March 7, 2003.
24 See the website of the Center for Financial Studies, http://www.ifk-cfs.de/index.php?id=12 and http://www.ifkcfs.
de/index.php?id=120.

Former ECB chief economist Issing accepts advisory post at Goldman Sachs, AFP, October 16, 2006.
26 Klaus C. Engelen, Barely contained outrage: what the Europeans really think about America’s regulatory blunders,
The International Economy, September 22, 2008.
27 Klaus C. Engelen, Barely contained outrage: what the Europeans really think about America’s regulatory blunders,
The International Economy, September 22, 2008.
28 Kate Kelly, How Goldman profited from subprime meltdown, Wall Street Journal, December 17, 2007.
29 Jenny Anderson & Landon Thomas jr, Goldman Sachs rakes in profit in credit crisis”, New York Times, November
19, 2007.

Pressestatements von Bundeskanzlerin Merkel, Bundesfinanzminister Steinbrück und dem Vorsitzenden der
Expertengruppe „Weltfinanzmarkt“, Issing, zum Weltfinanzgipfel, November 14, 2008. Pierre Paulden and Caroline
Salas, Goldman targeted by investor complaints of naked short selling, Bloomberg, November 17, 2008. Bill Saporito,
Are short sellers to blame for the financial crisis, Time, September 18, 2008.
31
https://webgate.ec.europa.eu/transparency/regrin/consultation/search.do#searchResult
32
His history in government and think tank based opposition is covered by Dorothee Bohle and Gisela Neunhöffer:
Why is there no third way? The role of neoliberal ideology, networks and think tanks in combating market socialism
and shaping transformation in Poland, p.89-104 in: Plehwe, Dieter, Walpen, Bernhard, Neunhöffer, Gisela, eds., 2006,
Neoliberal hegemony: a global critique, Routledge.
33 Bronwen Maddox, Can we bank on Poland to look back -or forward?, The Times, October 13, 2006, p43

34 Steven Greenhouse, ‘Shock therapy’ for Poland: jolt might be too damaging, The New York Times, December 26,
1989, Section D; p1.


35 Konstanty Gebert, ‘Shock’ crock; Poland’s overrated reforms’, The Washington Post, May 2, 1993.
36 European Enterprise Institute website -http://www.european-enterprise.org/
37 Joellen Perry, “Poland’s top banker is seen as a step back”, Wall Street Journal, January 17, 2007, p2.
38 Steven Pearlstein, “Poland’s economic revolutionary”, Washington Post, April 11, Financial, D01, 2007, p2.
39 Daniel J. Mitchell, Why Tax Havens Are a Blessing, March 17, 2008.
40 American Enterprise Institute; event ‘American Economic Way; Its Character, Effectiveness, and Applicability, 22-23
October 2004, Warsaw, Poland.
41 Leszek Balcerowicz, Atlantic Economics, speech at the Congress of Prague, May 12, 1996.
42
See Plehwe, Dieter and Bernhard Walpen, Between network and complex organization: the making of neoliberal
knowledge and hegemony, 27-50 in: Plehwe, Dieter, Walpen, Bernhard, Neunhöffer, Gisela, eds., 2006, Neoliberal
hegemony: a global critique, Routledge
43
Onno Ruding’s CV, RTL group website, accessed 23 February 2009.
44 Onno Ruding’s profile, Forbes website, accessed 23 February 2009.
45
Onno Ruding’s CV, RTL group website, accessed 23 February 2009.
46
Citi soars as $300bn bail-out is agreed, Financial Times, November 25, 2008.
47 The international financial crisis, Introductory note, H. Onno Ruding, Trilateral Commission (Europe), Meeting in
Paris on November 8, 2008.
48
Reiner Masera’s CV, EIB website, accessed 23 February 2009.
49 Siobhan Kennedy, Lehman Brothers appoints Italy Director - Rainer Masera, A banking veteran, will head Lehman’s
Financial Institutions Group in Italy, The Times, May 22, 2007.
50 Steve Fishman, Burning down his house - is Lehman CEO Dick Fuld the true villain in the collapse of Wall Street, or
is he being sacrificed for the sins of his peers? New York Magazine, November 30, 2008; Phillip Inman, Q&A: The
collapse of Lehman Brothers, The Guardian, September 15, 2008.
51 Klaus Engelen, Barely Contained Outrage: What The Europeans Really Think About America’s Regulatory
Blunders, The International Economy, September 22, 2008.
52 Jon Ungoed-Thomas & Nicola Smith, “EU ‘Ghost’ Bank Is Under Fire”, Sunday Times, Quoted in The Australian,
September 8, 2004, p33.
53 Mark Brown, ‘Calling the EIB to Account’, Euromoney, May 2004; Giles Tremlett, Conflicts at the heart of the EIB,
The Observer, March 7, 2004.
54 Committee on Economic and Monetary Affairs, Draft Report on the Activity Report of the European Investment
Bank, Rapporteur: Mónica Ridruejo, 2004/2012(INI)); Mark Brown, ‘Calling the EIB to Account’, Euromoney, May
2004.
55 CEE Bankwatch Network & Heinrich Böll Foundation, Brussels Office, The European Investment Bank:
Accountable Only to the Market? EU-Policy Paper No. 1, December 1999
56 Jon Ungoed-Thomas & Nicola Smith, ‘EU ‘Ghost’ bank is under fire’, Sunday Times, Quoted in The Australian,
September 8, 2004, p33
57 El Economista, El español José Pérez formará parte del grupo encargado de proponer mejoras en la supervisión
financiera’, October 22, 2008.
58 Finanzas.com, Barroso pide mayor coordinación financiera en UE como base de acuerdo global, October 22, 2008.
59 Cinco Dias, September 29, 1998 .
60 Intermoney website -http://www.intermoney.com/
61 IDEAglobal website – http://www.ideaglobal.com/products/info/about.html.
62
The Financial Crisis, Speech by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at HQ Bank, 15
October 2008.
63 Lars Nyberg; Hedge Funds and the Recent Financial Turmoil, January 28, 2008.
64 ‘The Financials Crisis’, 2008.
65 See for instance A Complementary Bottom-Up Approach For Financial Supervision, UNI-Finance, November 3,
2008.
66 See for instance COM (2002) 704 and COM (2002) 713. See also the ALTER-EU’s press release Commission to
NGOs: business rules OK, December 16, 2008.
67 Christine Pohl, Whose Views Count, Friends of the Earth Europe, February 2009.
68 For the fundamental lack of democracy, accountability and transparency in European decision-making processes on
financial market issues see also Myriam Vander Stichele, Financial Regulations in the European Union. Mapping EU
Decision Making Structures on Financial Regulation and Supervision. Report commissioned by Eurodad, WEED,
Campagna per la Riforma della Banca Mondiale and Bretton Woods Project, December 2008.