EU Commissioner’s Gold Plated Revolving Door to Influence Brexit Outcome
Never before has a former European Commission official been criticised as much for their post-EU career as ex-Commission president Barroso since he joined infamous US investment bank Goldman Sachs earlier this summer. Despite its scandalous nature, his move did not come as a complete surprise, given previous revolving door cases involving former EU commissioners. Citizens have every reason to ask if Barroso’s move goes against the public interest: evidence already points towards a gross violation of the EU Treaty. It would only be fair if Barroso was forced to choose between his new position with the banking giant and his generous EU pension.
José Manuel Barroso’s decision to become chairman of Goldman Sachs International and an adviser to the big investment bank very much fits with his stewardship of the Commission. From the beginning, his leadership followed a corporate agenda on a very wide range of issues, with its close links to the biggest businesses and banks in the EU representing a key trait of the way the European Commission operates.
Barroso’s latest spin through the revolving door breaks no rules of the Commission, because the rules for ex-commissioners are weak and only last for 18 months after leaving office. But the question is if those rules ensure the Commission lives up to EU Treaty article 245 which states that former commissioners will respect “their duty to behave with integrity and discretion as regards the acceptance, after they have ceased to hold office, of certain appointments or benefits”. We believe the Barroso case shows that they don’t. His spin through the revolving door from the helm of the Commission to the helm of Goldman Sachs is a risky business for citizens in the EU.
The article has been invoked once before, by the Council, when a former commissioner for industry, Martin Bangemann, announced he would take a job with Spanish telecommunications company Telefónica. The Council responded by opening a case against him at the European Court of Justice, arguing he was in breach of article 245 (then article 213), but in the end, it backed down.
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And the Barroso case appears to contain even more risks than the Bangemann case. Goldman Sachs has on many occasions defined political aims in the field of financial regulation that are highly controversial. It is known to use dubious methods, both in the market place and when pursuing its political agenda; and it is powerful, operating a well-oiled lobby machine that helps it meet its ends. With that in mind, Barroso’s move to Goldman Sachs has the potential both to ignite scandals and to put the EU institutions in an awkward position.
Barroso vs. the EU at Brexit negotiations
At the time of his appointment, Barroso told the Financial Times that as part of his role at Goldman Sachs he will do what he can to “mitigate the negative effects” of the Brexit decision. Barroso will be a key part of Goldman Sachs’ artillery as it does battle to retain access to EU financial markets, via so-called equivalence or passporting rules. Whether it is at the UK or EU level, Barroso will likely be able to deliver insights, access and influence, hardly in keeping with the duty to behave with integrity and discretion.
“Of course I know well the EU, I also know relatively well the UK environment … If my advice can be helpful in this circumstance I’m ready to contribute, of course,” said Barroso.
And it seems very likely that both Goldman Sachs and hence Barroso, will play an important role in the Brexit process. Goldman Sachs is well connected to key players in the UK government, as explained in a report by SpinWatch. And London was always the perfect base from which the bank could not only be involved in EU financial markets, but influence the rules of the game as well. It is no surprise that the UK government and six investment banks, including Goldman Sachs, have signed a joint statement to work together to defend the interests of the financial centre in the UK, the City of London, in the post-Brexit referendum world.
It is hard to imagine a more toxic scenario in a revolving door case if a former Commission President ends up supporting the ‘other side’ in EU exit negotiations, negotiations which are bound to bring serious matters into play. In the aftermath of the financial crisis, the UK government was always very hesitant to support financial regulation – it was often a vociferous opponent of stronger regulation – and the outcome of the Brexit negotiations will go a long way in determining the fate of both existing and future financial regulation in the EU and UK.
Barroso to work for Goldman Sachs’ financial deregulation agenda
Goldman Sachs has been a consistent lobbyist against financial regulation on both sides of the Atlantic. The lightly-veiled threat “Operations can be moved globally and capital can be accessed globally”, as voiced by Blankfein in 2010, sent a clear message: ‘If you pressure us too much, we’ll take our operations – and our money – elsewhere’.
In practically all important lobby battles since the financial crisis, Goldman Sachs has worked with European allies, and friends in the financial sector, to stop ambitious proposals to rein in the power of the financial sector.
With all this in mind, the question is: what will Barroso do for Goldman Sachs? On so many occasions, the investment bank has fought single-mindedly to stave off attempts to rein in the financial sector, and has often fought proposals from the Commission. What input will Barroso give to his colleagues at the bank?
Whatever advice he gives on this and other issues, it is likely to have an impact, as Goldman Sachs has a well-oiled lobby machine.
Barroso in a corporation with flawed ethics?
Imagine if a former Commission President were enmeshed in a scandal, be it if his new employer was accused of using illegitimate business practices that hurt the EU economy, or if it was accused of breaking or undermining EU rules, or accused of using bribery. Such scenarios would undeniably harm the “integrity” of the EU institutions, and as recent history shows, by joining Goldman Sachs, Barroso is sailing very close to the wind.
The most famous example of a Goldman Sachs’ blow to the EU economy is from the financial crisis of 2008.
“Goldman’s conduct in exploiting the residential mortgage-backed securities market contributed to an international financial crisis that people across the country … continue to struggle to recover from.”
Not our words but the words of United States Attorney for the Eastern District of California, in relation to the Department of Justice’s announcement that it would fine Goldman Sachs US$5.06 billion for the bank’s conduct in the “packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities” between 2005 and 2007.
“Today’s settlement is another example of the department’s resolve to hold accountable those whose illegal conduct resulted in the financial crisis of 2008” [emphasis added], said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.
Other big banks have had to pay for previous “fraudulent practices” too.
On another note, Goldman Sachs has sparked just as much controversy by helping the Greek government to bypass rules on official debt. In 2001-02, at the time of the launch of the euro, the Greek government was looking to reduce its overall debt burden in order to meet strict public finance rules for eurozone membership. In a deal concocted by Goldman Sachs, and for which it apparently reaped hundreds of millions of euros, Greece’s finance books were ‘cooked’. A two billion plus loan to Greece, arranged by the bank, was disguised as a “cross-currency swap” of dollars and yen for euros using fictitious exchange rates. Staff at the Greek debt management agency at the time have since argued that the “department did not understand what it was buying and lacked the expertise to judge the risks or costs”. The deal was not technically illegal at the time, but Eurostat banned them in 2008. For Greece, the short-term result of the 2001-02 deal was a two per cent reduction in its on-the-books public debt; the longer-term result was that by 2005, the country owed almost double what it had put into the deal in the first place. At the time, Mario Draghi, now head of the European Central Bank, was managing director of the international division of Goldman Sachs.
And now Goldman Sachs is involved in a bribery scandal. A court in London is currently gripped by the salacious details emerging from the legal case between the Libyan Investment Authority (LIA) which is suing Goldman Sachs for US$1.2 billion of losses on trades conducted in 2008. The court has heard allegations that a Goldman Sachs senior banker at the time gave iPods to staff at the LIA and even paid for prostitutes and private jets. The LIA was a project of the then Libyan dictator, Muammar Gaddafi, to manage the country’s oil wealth and in Goldman Sachs’ own words was “a very significant account for the firm”. The LIA apparently lost almost all its investment through the trades, while Goldman Sachs reaped “eyewatering” profits. Goldman disputes the case and argues that the LIA was a victim of the 2008 financial crash and not any wrongdoing on its part.
When taken together, these three examples risk depicting a financial corporation with apparently flawed ethics. If a former commissioner is associated with such a company, can he really argue that he has made a career choice based on “integrity and discretion”?
Goldman Sachs: repeatedly gaining influence via the revolving door
Goldman Sachs’ access, influence and know-how in the EU institutions including the European Commission and European Central Bank (ECB) has surely been boosted several times by its penchant for recruiting through the revolving door. The Barroso appointment is only the most recent of a long line of personnel moving seamlessly from the bank to public institutions, or vice versa. In fact, Barroso replaces Peter Sutherland as chairman of Goldman Sachs International; Sutherland was previously the director-general of the World Trade Organisation and a European commissioner.
Mario Monti was a European commissioner from 1995 to 2004, with responsibility for the internal market and then competition matters. Subsequently, Monti was asked by then Commission President Barroso to draft a report on the future of the European single market. At the same time, he was serving on the board of international advisers to Goldman Sachs. He was then catapultedinto power as unelected prime minister of Italy in November 2011, after the ECB effectively toppled the Berlusconi government, in order to implement austerity and reforms as demanded by the EU institutions.
Mario Draghi, now head of the European Central Bank, was previously managing director of the international division of Goldman Sachs from 2002-05 and in charge of the department which, shortly before his arrival, helped Greece to disguise the true extent of its debt (see above). Meanwhile, Draghi maintains his membership (as his predecessor ECB presidents have done) of theGroup of Thirty, a murky grouping which brings together central bank leaders with those from the major private banks, including several individuals with prior links to Goldman Sachs, such as current Bank of England governor Mark Carney who spent 13 years in its London, Tokyo, New York and Toronto offices.
In 2011, The Independent published this infographic to demonstrate the revolving door links between Goldman Sachs and key figures in the eurozone, such as Petros Christodoulou, who worked for Goldman Sachs, as well as for the Greek National Bank and who had a leading role in the Greek team negotiating with the Troika.