ECB Exemption From Disclosures Is Bad for Euro
When did the European Central Bank learn that Greece was concealing the catastrophic extent of its debts? And what did it know about the quality of the collateral the Greek government used to secure loans from the bank?
A European Union court said today that the ECB can keep secret internal documents that might throw light on these vital questions. In doing so, it rejected the first legal challenge to the bank’s blanket exceptions to freedom-of-information rights and set a worrying precedent that will discourage openness.
The ruling by the General Court in Luxembourg makes a mockery of ECB President Mario Draghi’s statement in October that his bank -- one of the most powerful yet least accountable to democratic oversight in the developed world -- is “very transparent.” As the ECB prepares to receive new powers to regulate banks across 17 countries, its opacity is worrisome.
The decision, which can be appealed to the European Court of Justice, involves a freedom-of-information request from Bloomberg News reporter Gabi Thesing that the ECB rejected in October 2010. The request was for two documents that ECB staff drew up for a meeting of the bank’s executive board in March that year. The first document is titled “The impact on government deficit and debt from off-market swaps. The Greek case.” The second is “The Titlos transaction and possible existence of similar transactions impacting on the euro area government debt or deficit levels.”
Titlos refers to securities that the National Bank of Greece, the country’s largest lender, issued for use as collateral in securing credit from the ECB. The underlying asset that backed the securities was an interest-rate swap between the Greek bank and the government.
A note attached to the papers and obtained by Bloomberg News said they show how Greece used swaps to hide its borrowings, a subterfuge that ended in 2009 when a new government revealed that Greece had been underreporting its budget deficit by half. The result was an instant collapse in market trust that sent Greece’s borrowing costs soaring and pushed the country toward default.
The ECB said in its response to Bloomberg’s request that the documents had informed its policy -- leaving little doubt as to their importance. The bank also said releasing them could undermine confidence in Greece’s ability to pay its debt.
By law, EU citizens have a legal right to see any document that is produced by any EU institution. As always, there are exceptions for reasons of security and other valid concerns. Our discomfort is with the extent of the exceptions as they apply to Europe’s most powerful economic institution.
For instance, a 2004 regulation issued by the ECB allows it to withhold information to protect the public interest as it applies to its own proceedings; the financial, monetary or economic policy of the EU or a member state; and international economic relations. In 2011, another exemption was added for information that might threaten financial stability.
The upshot? Pretty much anything the ECB does is exempt, an unhappy state of affairs enshrined by today’s ruling.
How did the court come to this conclusion? It said it could challenge the ECB’s interpretation of the public interest only if the ECB was “manifestly” wrong on the facts. It also said it had no latitude to balance the ECB’s interpretation of the public interest (in this case, the risk that releasing seven- month-old data and analyses could affect already-turbulent markets) against any wider public interest. That broader interest is self-evident: Given the 240 billion euros ($311 billion) that the Greek collapse has already cost, Europe’s taxpayers and bond investors need to understand what the ECB knew, how it analyzed complex Greek collateral and what it accepted in return for loans.
The law also specifies that if a legal challenge to the ECB’s decision fails, the challenger must pay the central bank’s legal costs. This ruling makes it unlikely that other media companies or interested parties will follow Bloomberg’s attempt.
There was a time when central banks made their decisions behind closed doors and publicly listed companies weren’t compelled to disclose essential commercial data. The U.S. Federal Reserve, for example, didn’t reveal its interest-rate targets until the 1990s. Since then, it has become clear that transparency is good for markets, good for consumers and good for competition. Those days of operating in the dark seem, at best, quaint.
The Fed and the Bank of England are now relatively quick to publish the minutes of their interest-rate deliberations. The ECB, however, isn’t required to publish its minutes for 30 years. The Bank of England also publishes a record of how each member of its Monetary Policy Committee voted. The ECB doesn’t even have to reveal whether a vote was taken. The news conferences that follow ECB rate decisions are a poor substitute for transparency.
As we’ve said before, the ECB’s secrecy limits the scrutiny that proper accountability demands. Secrecy makes it harder for markets to predict where interest rates are headed or what other policies may be coming from an institution that has, in fact if not in law, become the euro area’s lender of last resort. This lack of predictability hurts stability and makes it harder for a young bank, administering a young currency, to gain credibility.
The ECB should publish its minutes within a month and it should reveal the votes that its 23 members cast. We still don’t know what’s in the two documents at issue, but today’s court decision should serve as a warning that the exceptions the ECB has written for itself are too broad and should be tightened. The ECB should have less freedom to withhold information and judges should have more leeway to order its release.
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