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Global Power Project: The Group of Thirty, Architects of Austerity
By: Andrew Gavin Marshall
Originally posted at Occupy.com
The Group of Thirty, a preeminent think tank that brings together dozens of the world’s most influential policy makers, central bankers, financiers and academics, has been the focus of two recent reports for Occupy.com’s Global Power Project. In studying this group, I compiled CVs of the G30’s current and senior members: a total of 34 individuals. The first report looked at the origins of the G30, while the second examined some of the current projects and reports emanating from the group. In this installment, I take a look at some specific members of the G30 and their roles in justifying and implementing austerity measures.
Central Bankers, Markets and Austerity
For the current members of the Group of Thirty who are sitting or recently-sitting central bankers, their roles in the financial and economic turmoil of recent years is well-known and, most especially, their role in bailing out banks, providing long-term subsidies and support mechanisms for financial markets, and forcing governments to implement austerity and “structural reform” policies, notably in the European Union. With both the former European Central Bank (ECB) President Jean-Claude Trichet and current ECB President Mario Draghi serving as members of the G30, austerity measures have become a clearly favored policy of the G30.
In a January 2010 interview with the Wall Street Journal, Jean-Claude Trichet explained that he had been “involved personally in numerous financial crises since the beginning of the 1980s,” in Latin America, Africa, the Middle East and Soviet Union, having been previously the president of the Paris Club – an “informal” grouping that handles debt crisis and restructuring issues on behalf the world’s major creditor nations. In this capacity, Trichet “had to deal with around 55 countries that were in bankruptcy.”
In July of 2010, Trichet wrote in the Financial Times that “now is the time to restore fiscal sustainability,” noting that “consolidation is a must,” which is a different way of saying austerity. In each of E.U. government bailouts – of which the ECB acted as one of the three central institutions responsible for negotiating and providing the deal, alongside the European Commission and the IMF, forming the so-called Troika – austerity measures were always a required ingredient, which subsequently plunged those countries into even deeper economic, social and political crises (Spain and Greece come to mind).
The same was true under the subsequent ECB president and G30 member, Draghi, who has continued to demand austerity measures, structural reforms (notably in dismantling the protections for labor), and extended support to the banking system, even to a greater degree than his predecessor. In a February 2012 interview with the Wall Street Journal, Draghi stated that “the European social model has already gone,” noting that countries of the Eurozone would have “to make labour markets more flexible.” He meant, of course, that they must have worker protections and benefits dismantled to make them more “flexible” to the demands of corporate and financial interests who can more easily and cheaply exploit that labor.
In a 2012 interview with Der Spiegel, Draghi noted that European governments will have to “transfer part of their sovereignty to the European level” and recommended that the European Commission be given the supranational authority to have a direct say in the budgets of E.U. nations, adding that “a lot of governments have yet to realize that they lost their national sovereignty a long time ago.” He further explained, incredibly, that since those governments let their debts pile up they must now rely on “the goodwill of the financial markets.”
Another notable member of the Group of Thirty who has been a powerful figure among the world’s oligarchs of austerity is Jaime Caruana, the General Manager of the Bank for International Settlements (BIS), which serves as the bank for the central banks of the world. Caruana was previously Governor of the Bank of Spain, from 2000 to 2006, during which time Spain experienced its massive housing bubble that led directly to the country’s debt crisis amid the global recession. In 2006, a team of inspectors within the Bank of Spain sent a letter to the Spanish government criticizing then-Governor Caruana for his “passive attitude” toward the massive bubble he was helping to facilitate.
As head of the BIS, Caruana delivered a speech in June of 2011 to the assembled central bankers at an annual general meeting in Basel, Switzerland, in which he gave his full endorsement of the austerity agenda across Europe, noting that “the need for fiscal consolidation [austerity] is even more urgent” than during the previous year. He added, “There is no easy way out, no shortcut, no painless solution – that is, no alternative to the rigorous implementation of comprehensive country packages including strict fiscal consolidation and structural reforms.”
At the 2013 annual general meeting of the BIS, Caruana again warned that attempts by governments “at fiscal consolidation need to be more ambitious,” and warned that if financial markets view a government’s debt as unsustainable, “bond investors can and do punish governments hard and fast.” If governments continue to delay austerity, he said, the markets will have to use “market discipline” to force governments to act, “and then the pain will be large indeed.” In further recommending “structural reforms” to labor and service markets, Caruana noted that “the reforms are critical to attaining and preserving confidence,” by which, of course, he meant the confidence of markets.
The ‘Academic’ of Austerity: Kenneth Rogoff
Kenneth Rogoff is an influential academic economist and a member of the Group of Thirty. Rogoff currently hold a position as professor at Harvard University and as a member of the Council on Foreign Relations. He sits on the Economic Advisory Panel to the Federal Reserve Bank of New York, and previously Rogoff spent time as the chief economist of the IMF as well serving as an adviser to the executive board of the Central Bank of Sweden. Rogoff is these days most famous – or infamous – for co-authoring (with Carmen Reinhart) a study published in 2010 that made the case for austerity measures to become the favored policy of nations around the world.
The study, entitled, “Growth in a Time of Debt,” appeared in the American Economic Review in 2010 to great acclaim within high-level circles. One of the main conclusions of the paper held that when a country’s debt-to-GDP ratio hits 90%, “they reach a tipping point after which they’ll start experiencing serious growth slowdowns.” The paper was cited by the U.S. Congress as well as by Olli Rehn, the European Commissioner for Economic and Monetary Affairs and one of Europe’s stalwart defenders of austerity, who has demanded the measures be instituted on multiple countries in the E.U. in return for bailout funds.
A Google Scholar search for the terms “Growth in a Time of Debt” and “Rogoff” turned up approximately 828 results. In 2013, Forbes referred to the paper as “perhaps the most quoted but least read economic publication of recent years.” The paper was also cited in dozens of media outlets around the world, multiple times, especially by influential players in the financial press.
In 2012, Gideon Rachman, writing in the Financial Times, said Rogoff was “much in demand to advise world leaders on how to counter the financial crisis,” and noted that while the economist had been attending the World Economic Forum meetings for a decade, he had become “more in demand than ever” after having “written the definitive history of financial crises over the centuries” alongside Carmen Reinhart. Rogoff was consulted by Barack Obama, “and is known to have spent many hours with George Osborne, Britain’s chancellor,” wrote Rachman, noting that Rogoff advised government’s “to get serious about cutting their deficits, [which] strongly influenced the British government’s decision to make controlling spending its priority.”
The praise became all the more noteworthy in April of 2013 when researchers at the University of Massachusetts, Amherst, published a paper accusing Rogoff and Reinhart of “sloppy statistical analysis” while documenting several key mistakes that undermined the conclusions of the original 2010 paper. The report from Amherst exploded across global media, immediately forcing Rogoff and Reinhart on the defensive. The New Yorker noted that “the attack from Amherst has done enormous damage to Reinhart and Rogoff’s credibility, and to the intellectual underpinnings of the austerity policies with which they are associated.”
As New York Times columnist and fellow G30 member Paul Krugman noted, the original 2010 paper by Reinhart and Rogoff “may have had more immediate influence on public debate than any previous paper in the history of economics.” After the Amherst paper, he added, “The revelation that the supposed 90 percent threshold was an artifact of programming mistakes, data omissions, and peculiar statistical techniques suddenly made a remarkable number of prominent people look foolish.” Krugman, who had firmly opposed austerity policies long before Rogoff’s paper, suggested that “the case for austerity was and is one that many powerful people want to believe, leading them to seize on anything that looks like a justification.”
Indeed, many of those “powerful people” happen to be members of the Group of Thirty who are, with the notable exception of Krugman, largely in favor of austerity measures. Krugman himself tends to represent the limits of acceptable dissent within the G30, criticizing policies and policy makers while accepting the fundamental concepts of the global financial and economic system. He commented that he had been a member of the G30 since 1988 and referred to it as a “talk shop” where he gets “a chance to hear what people like Trichet and Draghi have to say in an informal setting,” adding, “while I’ve heard some smart things from people with a role in real-world decisions, I’ve also heard a lot of very foolish things said by alleged wise men.”
Andrew Gavin Marshall is a 26-year old researcher and writer based in Montreal, Canada. He is Project Manager of The People’s Book Project, chair of the Geopolitics Division of The Hampton Institute, research director for Occupy.com’s Global Power Project and World of Resistance (WOR) Report, and hosts a weekly podcast show with BoilingFrogsPost.
Global Power Project: Central Bankers and the Institute of International Finance, Part 3
By: Andrew Gavin Marshall
Originally posted at Occupy.com
In Part 1 of the Global Power Project exposé on the Institute of International Finance, I examined the origins and evolution of an organization representing the interests of global banks. In Part 2, I looked at the role played by the IIF and its leadership during the European debt crisis. In this third and final part in the series, I examine the relationship between the IIF and global central bankers.
Since the early 1990s, the IIF has been heavily involved working with central bankers, particularly through the Bank for International Settlements (BIS) in Basel, Switzerland, where private bankers have been granted a powerful position determining their own regulations in international financial markets. The IIF has been central throughout the reform of Basel I and the entire process of both Basel II and Basel III – collectively known as the Basel Accords – which were officially organized through the Basel Committee on Banking Supervision (BCBS), run out of the BIS.
From 1999 to 2004, the Basel Committee organized to impose a new set of global banking regulations, called Basel II. The head of the Basel Committee at the time was William McDonough, then the president of the Federal Reserve Bank of New York and a former Vice Chairman at the First National Bank of Chicago. He was also a founding member of the IIF at the 1982 Ditchley Conference, and remained a member on the board of the IIF from 1984 until 1990.
McDonough later explained: “Without the IIF it would have been far more difficult for regulators, such as the Basel Committee, to fully understand the critical issues that confronted the banks. The meetings with the IIF were an excellent sounding board – we trusted them (the banks) and they trusted us (the regulators).”
At the start of the Basel II process in 1999, the IIF created a special group, the Steering Committee on Regulatory Capital, which was to engage with the Basel Committee on behalf of the global banking industry. The papers put forward by the Steering Committee were ultimately accepted and implemented by the Basel Committee in the final accord, Basel II, essentially allowing the banks to regulate themselves.
The Chair of the Steering Committee, Daniel Bouton, who was also chairman and CEO of the French bank, Société Générale, later commented that, “It was of the utmost importance to try to have a coordinated view of the global banking industry in order to be able to discuss with the Basel Committee the most important questions. In fact, the IIF has been the single platform to forge a consensus between global banks about the key principles. And so it has played a very important part in discussions with the Basel Committee.”
But the relationship between the IIF and central bankers goes beyond the timid attempts at “regulation” on the part of global central banks. In fact, central bankers traverse through the revolving door of financial markets: from the mega-banks into the central banks.
At the mega-banks, the bankers’ job is to maximize profits through financial markets. At central banks, their job is to protect the banks through management of financial markets. It is a relationship of mutual interest, each side in need of the other, and together, with unprecedented power, central bankers and the “too-big-to-fail” mega-banks have become financial institutions that dominate the global economy.
Indeed, the Institute of International Finance has a number of boards which meet regularly that include several central bank chiefs. Notably, there is the IIF’s Group of Trustees of the Principles, with four co-chairs. One of the co-chairs is Agustin Guillermo Carstens, the Governor of the Bank of Mexico, who also sits on the board of directors of the Bank for International Settlements. In addition he is a member of the Steering Committee of the G20 Financial Stability Board (FSB), a group of central bank chiefs and finance ministers from the G20 nations who meet alongside leaders of the BIS, European Central Bank, European Commission, IMF, World Bank and the OECD to determine the world’s response to the recent global financial and economic crises.
The other co-chairs of the IIF’s Group of Trustees include: Christian Noyer, the Governor of the Bank of France (from 2003 to the present) and chairman of the Bank for International Settlements (from 2010 to the present); Zhour Xiaochuan, the Governor of the People’s Bank of China (2002 to the present) and a member of the board of directors of the BIS, as well as chairman of the Chinese Monetary Policy Committee and Vice Chairman of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC); and Toshihiko Fukui, former Governor of the Bank of Japan from 2003 to 2008, current president of the Canon Institute for Global Studies, and a former member of the board of the BIS.
Another notable member of the Group of Trustees is Jaime Caruana, the General Manager of the BIS (from 2009 to the present), former Governor of the Bank of Spain, former member of the Governing Council of the European Central Bank (ECB), former Chairman of the Basel Committee, and current member of the G20 Financial Stability Board (FSB). Caruana is also a member of the Group of Thirty, a major think tank bringing together finance chiefs, central bankers and private bankers.
Also on the list is Jean-Claude Trichet, the former President of the European Central Bank from 2003-2011, current chairman of the Group of Thirty, European Chairman of the Trilateral Commission, Chairman of the board of directors of the European think tank BRUEGEL, member of the board of directors of EADS, former president of the Global Economy Meeting of Central Bank Governors at the BIS, former member of the board at the BIS, and current member on the board of the Peter G. Peterson Institute for International Economics, as well as a member of the Steering Committee of the Bilderberg Group.
Other members of the Group of Trustees include current or former top officials from the Bank of Canada, the Italian Ministry of Economy and Finance, the Bank of Italy, the Spanish Ministry of Finance, the IMF, Bank of France, Bank of Brazil, Bank of Chile, Bank of Iceland, German Finance Ministry, the European Central Bank, the World Bank, Federal Reserve Bank of New York, the Saudi Arabian Monetary Authority (SAMA), South African Ministry of Finance, Nigerian Ministry of Finance, and the Turkish Ministry of Finance, among many others.
The Group of Trustees doesn’t merely consist of so-called “public officials,” but also many private bankers and other prominent global power players including top officials from Deutsche Bank, JPMorgan Chase, Credit Suisse, Commerzbank, Citigroup and others.
Another noteworthy member of the Group of Trustees of the IIF is Paul Volcker, the former Chairman of the Board of Governors of the Federal Reserve System from 1979 to 1987, who was previously a chief economist at Chase Manhattan Bank (then under the leadership of David Rockefeller) as well as a former Treasury official and former president of the Federal Reserve Bank of New York. Volcker has since been Chairman of President Obama’s Economic Recovery Advisory Board from 2009 to 2011, a member of the board of directors of the Peterson Institute for International Economics, a member of the Executive Committee of the Trilateral Commission, Chairman Emeritus of the Group of Thirty, and a participant at Bilderberg Meetings.
Not only are central bankers, finance ministers and other “public officials” members of various boards at the IIF, but they also attend regular meetings hosted by the IIF, bringing them into consistent, close contact with the leading figures of the world’s largest financial institutions (aka: their real constituents). With the emerging financial crisis in 2007, the IIF hosted a meeting in Washington, DC, over the course of a weekend that they spent “lavishing central bankers and policymakers with praise, awards and banquets,” and as the Financial Times reported, “a genuine warmth appears to have developed between many senior bankers and policymakers.”
At the 2010 annual meeting of the IIF, in the midst of the exploding European debt crisis, notable invited guest speakers included the Greek Finance Minister as well as Olli Rehn, the European Commissioner for Economic and Monetary Affairs. In his speech, Rehn made clear that his objective, and that of the European Commission, was to enforce austerity measures and “bold structural reforms,” particularly in “labor and product markets.”
At the 2011 annual meeting of the IIF, guest speakers included the German Finance Minister Wolfgang Schauble alongside the Greek Finance Minister Evangelos Venizelos, who spoke of the “political and social cost” of the austerity measures in Greece, enforced under the pressure of financial markets, which he claimed were “an important step that will… convince the markets that the Euro Area can indeed protect itself and its member states.”
Also in attendance at the same IIF meeting was Mark Carney, then the Governor of the Bank of Canada, a board member at the BIS, Chairman of the Committee on the Global Financial System at the BIS, incoming Chairman of the Financial Stability Board (FSB), and now also Governor of the Bank of England. While Carney is often praised for being unafraid to confront bankers, he told the annual meeting that “financial institutions and markets should play critical and complimentary roles in supporting long-term economic prosperity,” even while acknowledging that the latest Basel III banking “regulations” (which he was pivotal in forming) would have little effect in making financial markets safer.
At the 2011 meeting, a special tribute was paid to the outgoing president of the European Central Bank, Jean-Claude Trichet, who had done so much to protect financial markets and banks at the expense of the living standards of the EU general population. Special remarks and presentations in honor of Trichet were delivered by Deutsche Bank CEO Josef Ackermann, IIF Managing Director Charles Dallara, Paul Volcker and Mark Carney. Trichet was commended for two “resolutions,” one of which was signed by the finance ministers and central bank governors of the G20 nations, as well as the leaders of the World Bank and IMF (with IMF Managing Director Christine Lagarde present at the IIF meeting as well), who praised Trichet for his “steadfast leadership in encouraging the governments of Europe to strengthen economic governance and fiscal discipline in the Euro Area,” as well as for “his leading role among global central bank governors in Basel” at the Bank for International Settlements.
Another “resolution” delivered in honor of Trichet was signed by the board of directors of the IIF who praised him “for his many contributions over the past decades to the stability and soundness of the international financial system and the global economy” – which, if anything, Europe’s crisis in 2011 stood as a profound testament against – and they also thanked Trichet for his “laudable improvements to global financial markets” and for being “a tremendous force behind the development of market-based approaches to debt crisis prevention and resolution.”
It is cause for concern when the world’s biggest bankers sit on the same boards and invite the major regulators, central bank chiefs and finance ministers to their meetings, gathering up awards and praise while keeping those parties firmly entrenched within their sphere of influence. The relationship between private banks and central banks is a complex one that is mired in overlap, mutual interests and mutual benefits: a system in which more profit and power is continually bestowed on ever fewer global banking chiefs and technocrats who are unelected, unaccountable and unapproachable – except, of course, to other members of the Institute of International Finance.
Andrew Gavin Marshall is a 26-year old researcher and writer based in Montreal, Canada. He is Project Manager of The People’s Book Project, chair of the Geopolitics Division of The Hampton Institute, research director for Occupy.com’s Global Power Project, and hosts a weekly podcast show with BoilingFrogsPost.