Kenneth Haar is a Researcher at the Corporate Europe Observatory and Stanislas Jourdan is the coordinator of the Quantitative Easing for people in the Eurozone campaign.
Can you explain to our readers what is the “Corporate Europe Observatory” and why it deals with Quantitative Easing?
Kenneth Haar: Corporate Europe Observatory is a lobby watchdog, we see it as our mission to disclose how big companies manage to influence decisions in the EU institutions by staging lobbying campaigns, and we use that information in our efforts to curb their power. We are provoked when we see the EU institutions put themselves at the service of big corporations with little regard of other interest groups in society. The ECB's corporate bond purchasing programme is a case in point. Tens of billions of euros invested in the biggest companies in Europe. First thought when we saw it was, well, imagine if that money were invested directly in jobs and sustainable development.
What did you find out by analyzing ECB's corporate bond investments?
Kenneth Haar: Generally, we found that a large number of the investments made, had gone to sectors where public investments make little or no sense at all. Why on earth would we want precious euros to be spent on oil, arms, lotteries and luxury goods? That shopping list is hardly the road to success for society, not least in the present European context where we should be addressing climate change, unemployment and erosion of social rights.
Stan Jourdan: It was was clear to us since the beginning that the design of this programme would result in subsidizing large multinationals who are by far not the most exemplary in social and environmental terms. Our doubts were only confirmed when we analysed the list of entities benefitting from the ECB's market interventions. It is hard to think that any of those companies are not involved in questionable practices such as environmental harm, social malpractices, share buybacks, mergers and acquisitions or even tax avoidance.
Why didn’t ECB have a policy that limits the investment sectors?
Kenneth Haar: That's a good question. If you ask the ECB itself, it would claim it has steered its purchases on the basis of a neutrality principle. It has purchased the bonds available across a broad range of sectors. No discrimination, no political choices involved. Our point is, the result is far from neutral. Even if the ECB did attempt to spread investments evenly across the sectors offering secure bonds for purchase, they end up lending disproportionate backing to specific companies in specific sectors, in part because not all companies and sectors are well represented on bond markets, and generally small and medium size companies simply do not issue bonds.
Stan Jourdan: The ECB consider itself as a non-political organisation and therefore they think they have to be “market-neutral”, even though there is no legal limitation for the ECB to act differently. Now of course, markets themselves (and particularly corporate bonds markets) do not represent the whole economy! Hence we challenged the ECB’s view by arguing that even if the ECB’s programme is “market neutral”, it is not “economy-neutral” and even less climate-neutral. Through this programme, they certainly provide preferential treatment to large companies. Even worse, the ECB is signaling to the public that they basically don’t care about climate change in spite of the EU's commitment to address that issue.
Weapons, fossil fuels, low cost airlines (Ryanair), but also gambling. In Italy, Novomatic's corporate bond purchase has caused a lot of scandals. What are the most critical ECB investment sectors? What do you think about the Novomatic “affaire”?
Kenneth Haar: What we found most intriguing was that the ECB has ended up supporting fossil fuels - with its investments in oil, gas, cars and energy intensive industries. That was the main conclusion from our first analysis, one that was later backed by a scientific paper. But clearly, other investments made the whole programme look grotesque, and Novomatic is a good example. I'd like to hear someone explain to me why investments in lotteries and other games is an appropriate choice? And why would we want to see public money invested in arms production, in fine champagne or luxurious handbags? And does it make us comfortable when we realise that companies notorious for their contempt for workers rights are blessed by the ECB? These are all rhetorical questions, of course. The point is that the so-called "neutrality principle" adopted by the ECB, leads to strange results, and unacceptable results.
Stan Jourdan: Our work with the QE for People campaign focuses on changing the overall strategy of the European Central Bank, not at the particular implications for certain businesses. However once again the fact htat the ECB is buying bonds from those companies certainly set a bad precedent and negatively affects the ECB's reputation and legitimacy.
What kind of impact do investments have in these critical areas?
Kenneth Haar: The purchases are about lowering the costs of loans for corporations, if they work. That is the purpose - to enable corporations to issue bonds with a lower yield. From that comes investments, or so the ECB says. The result seems to be mixed at best. Indications are, that investments haven't lived up to expectations.
Is there transparency on the names and figures of the ECB's investments? Can media play an active role in transparency?
Kenneth Haar: As a result of the pressure created by our work, and not least by the QE4 People coalition, the ECB has decided to publish the names of the companies on the bonds, plus some of the main economic characteristics, maturity and interest rates. What the ECB will not do, is to disclose just how much money has been invested in individual bonds. So, for instance, we know how many types of bonds that relates to particular companies, that have been purchased by the ECB. But we don't know how much money has been invested, and the ECB is not willing to make that information public. Their argument is that it will lead to market manipulation, that once investors know how much the ECB is in on, say, Shell bonds or bonds from Total, then it will have a strong bearing on what other investors do. I'm very sceptical with that argument. Early on, there were indications that advanced investors have a pretty good idea about the scale of ECB investments in particular companies. So, in the end it is about what the public is entitled to know, and what not.
Stan Jourdan: The transparency of the ECB's corporate bond programme was initially very poor. It took us a lot of efforts to get a group of 40 MEPs to send a written letter to the ECB asking for major transparency improvements, before the ECB took action. Under pressure from this unprecedented call by the EU Parliament, the ECB is now providing an aggregated list of securities purchased under the programme. While this is a positive move, much more can be done by the ECB, in particular in terms of disclosing the volume of the ECB's purchases.
What can we do to change things?
Kenneth Haar: We need to make the ECB understand that its position is not neutral, that it has chosen the wrong path on several accounts. I tend to think our first assignment should be to halt investments that prolongs and strengthens an economy based on fossil fuels. And in fact, the international agreement on climate change, the Paris agreement, states that signatories must secure that financial flows must be consistent with a pathway towards low emissions. The current programme certainly is not. That must be fixed in the short term. And we need to get to that through pressure on our politicians. In principle, the ECB can ignore them, but in the long run it would have an impact anyway.
Stan Jourdan: As Kenneth pointed out, we need to challenge the ECB's interpretation of their mandate. They keep arguing that they have to be market neutral, but there is no clear definition of what that means. In fact, the ECB once told us that there is no legal barrier to make their programme more strategically oriented, for example towards green infrastructure. There is a lot of leeway in the Treaty allowing them to make more socially oriented policies, but they seem reluctant support the economy other than by using financial institutions as intermediaries.
What is your campaign “QE for People” and how does it work?
Stan Jourdan:: Our campaign was launch in November 2015 as an attempt to spur a democratic debate about the orientations of the ECB's monetary policy. Though the campaign is mainly driven by the nonprofit organisation Positive Money, it is a collective effort supported by 20 civil society organisations and 115 economists.
The failure of the ECB's QE was so predicable that we felt we had to do something about it. The only benefit of QE is to reduce market instability. In that sense the ECB should have done it in the early stages of the greek crisis! Beyond that however, QE programmes in the US, Japan or the UK provide wide evidence that QE is not an effective tool to stimulate growth neither employment and inflation, especially when governments are implementing austerity policies simultaneously..
This is why we propose alternative form of monetary policies. For instance the ECB could allocate a large part of their money creation programme towards green infrastructure via the European Investment Bank and other investments institutions (what we call "green quantitative easing). They could also distribute money directly to all citizens via what some people call "helicopter money".
As an independent institution, the ECB is always shying away to engage in policies that involve some kind of coordination with other institutions involved in fiscal or investment policies. They think they don't have political legitimacy to do so. To untangle this situation, the European Parliament should express its explicit consent to those policies. This way, the ECB would have little argument for dismissing them anymore.