 |
War and Peace by Shlomo Ben-Ami |
 |
Crossing Cultures by Ian Buruma |
 |
 |
 |
The Statesmen's Debate by Castaneda, Haass, Rocard |
 |
Anatomy of the Global Economy by J. Bradford DeLong |
 |
Net World by Esther Dyson |
 |
The Rebel Realist by Joschka Fischer |
 |
Capitalism Then and Now by Harold James |
 |
The Peacemaker by Richard Holbrooke |
 |
Global Warning by Bjorn Lomborg |
 |
European Observer by Dominique Moisi |
 |
Of Might and Right by Joseph S. Nye |
 |
History in Motion by Chris Patten |
 |
Roads to Prosperity by Dani Rodrik |
 |
The Unbound Economy by Kenneth Rogoff |
 |
Economics and Justice by Jeffrey D. Sachs |
 |
 |
Finance in the 21st Century by Roubini, Shiller |
 |
The Ethics of Life by Peter Singer |
 |
 |
Transatlantic Perspectives by Feldstein, Sinn |
 |
I Dissent: Unconventional Economic Wisdom by Joseph E. Stiglitz |
 |
Against the Current by Robert Skidelsky |
 |
Awakening India by Shashi Tharoor |
 |
The Next Wave by Naomi Wolf |
SAN FRANCISCO -- The French government should be honoring Bank of France Governor Christian Noyer for saving Société Générale from certain bankruptcy in the current rogue trader scandal, not criticizing him, as some high government officials have done. “Loose lips sink ships” is received wisdom in central banking circles. But if President Nicolas Sarkozy’s team in the Élysée Palace had had its way, Noyer would have immediately informed the government of Société Générale’s troubles.
Had that happened, there would have been an unacceptable risk that the news would leak to speculators before Société Générale had a chance to liquidate the extraordinary large stock positions that Jérôme Kerviel had amassed, presumably without the bank’s knowledge. The loss for Société Générale could have been far higher than the €5 billion it is reported to have incurred.
Speculators could have “front run” the bank in the markets, selling short, driving equity prices down, and forcing the French financial institution to sell into a bottomless pit. Is a forced bankruptcy in extremely fragile global financial markets what the French government wanted for Société Générale?
How can President Sarkozy, who has repeatedly attacked financial speculators, question the judgment of the very man who, by knowing how to keep his mouth shut in a crisis, thwarted them?
Of course, independent central bankers are not Sarkozy’s favorite people. According to Laurent Dubois, a political science professor at the Sorbonne in Paris, Noyer may pay for Sarkozy’s battles with the European Central Bank. Sarkozy has “a problem with central banks’ independence,” and Noyer may become a “scapegoat.”
Not likely – at least in the current political environment. Sarkozy’s recent poll numbers have been dropping like a stone. According to the TNS Sofres poll for Le Figaro Magazine, Sarkozy’s popularity tumbled a whopping eight percentage points in January, to just 41%, the lowest level since he took office last May and down from a high of 65% in July.
Sarkozy, who during his electoral campaign vowed to be the “president who delivers on purchasing power,” now faces an angry French public whose primary complaint is that purchasing power is being eroded by inflation.
In this changed political environment, Sarkozy is not likely to go after someone like Noyer who, as Bank of France Governor and a member of the ECB’s Governing Council, is widely viewed as a stalwart against inflation and a defender of French purchasing power.
Why risk a “soft on inflation” label? Sarkozy might even tone down his attacks on the ECB, whose single-minded, inflation-fighting policies have made it one of his favorite targets.
That would be a good thing. With Sarkozy off his back, ECB President Jean-Claude Trichet might feel freer to cut interest rates to counter the impending economic slowdown in Europe.
Meanwhile, though Société Générale has been saved by Noyer’s professionalism and political courage, it has been badly wounded and will most likely be taken over by another bank.
A foreign takeover would raise French protectionist hackles. “Société Générale will remain a great French bank,” Prime Minister Francois Fillon has said. “The government will not allow it to be the target of hostile raids by other banks.”
The problem is that the French government is barred from doing this under an EU directive that it signed last year, which was specifically introduced to improve transparency in banking mergers. After Italy’s former central bank governor, Antonio Fazio, flagrantly abused his position to block a takeover of an Italian bank by ABN Amro, member countries agreed that future mergers would be assessed on five objective criteria, the idea being to prevent governments from blocking foreign bids purely for protectionist reasons.
Noyer’s diplomatic skill certainly will be put to the test if he has to navigate the treacherous waters between the Scylla of French protectionism and the Charybdis of the EU’s five criteria for bank mergers. Foreign bank mergers have proved poisonous for euro-zone central bankers.
So far, the only serious candidates to emerge for a Société Générale takeover are two French banks, Credit Agricole and BNP Paribas. But should a credible foreign offer for Société Générale appear in the coming weeks – and it well might – another disruptive conflict between the Bank of France and the government may be in the offing.
The Société Générale rogue trader scandal has caused more problems than any of the main players possibly could have imagined.
Melvyn Krauss is a senior fellow at the Hoover Institution, Stanford University.
Copyright: Project Syndicate, 2008.
www.project-syndicate.org
