Barroso's
new job puts Brussels in a tight spot
Nils Pratley
If
Goldman Sachs is off-limits, the European commission would have to
explain why former top officials end up at EU banks
Tuesday 6 September
2016 19.38 BST
For Goldman Sachs,
it was probably an easy hire to make. The bank needed a new chair for
its London-based international operations, based in London. The UK
had just voted for Brexit, creating complexities over passporting
rights and so on. So send for José Manuel Barroso, former head of
the European commission, just the chap to guide the bank through the
negotiation mash-up.
Cue uproar among
some of Barroso’s former staff in Brussels. An online petition
organised by “a spontaneous group of employees of the European
Institutions” has damned him for joining the US investment bank and
called for “strong exemplary measures,” like removal of his
pension. Almost 125,000 people have endorsed the view that Barroso’s
action is “morally reprehensible” and has caused “dishonour”
to the “European civil service and the European Union as a whole”.
Up to a point, one
can agree. The revolving door between banks and senior bureaucrats
and central bankers turns far too freely. Barroso waited only two
months after the expiry of his 18-month cooling-off period before
taking the Goldman gig. And Goldman, of course, is a bank alleged to
have helped Greece to massage its books to get into the euro. Barroso
knew the sensitivities and decided to take the job anyway. As a tale
of gilded elites shuffling between public and private realms, it’s
a classic.
Yet it’s hard to
believe the EU’s ethical watchdog, prodded by the petition to ask a
few questions, will manage a single bark. First, Barroso seems to
have obeyed the rules. Second, if Goldman is off-limits, the
commission would have to explain why European banks, retirement homes
for other former top officials, are acceptable.
Third, if the
European commission really wanted to preach financial purity and
transparency to the world, it would start by shining more light on
the tax affairs of Luxembourg, home state of Barroso’s successor,
Jean-Claude Juncker. One suspects this entertaining affair is going
nowhere.
PPI saga runs and
runs
Is there anyone in
the country who only just heard it is possible to claim compensation
for mis-sold payment protection insurance (PPI)? Plenty of people, it
seems. Complaints to the Financial Ombudsman are still rolling in at
a rate of 3,000 a week.
Some of these claims
will be bogus, of course, as the banks keeping telling us. Not all
will be, however, and the volume of complaints should make lenders
understand why the Financial Conduct Authority was right to extend
its proposed cut-off for claims to June 2019 rather than spring 2018.
The principle of a
cut-off is sensible because the PPI scandal, which has cost the
industry £37bn in claims and administration costs, cannot be allowed
to run indefinitely. But legitimate claims still require time for
proper consideration. The banks could have helped themselves by
handling all claims properly but Lloyds Banking Group, for example,
copped a heavy fine on that front last year. Regulatory sympathy will
rightly be in short supply even as a few more billions are added to
the final PPI bill.
Startup
Here’s a subject
for the Treasury select committee to chew over on a rainy day: at
what rate is it acceptable for the government to lose money when
lending to startup businesses?
The question is
prompted by the Press Association’s revelation, via a freedom of
information request, that 31% of the loans distributed by the
government-backed startup loan scheme have been written off or are in
arrears. In hard money, bad debts are £72.4m out of £232m lent.
In the commercial
world, a bank would be on its knees if such a high proportion of
loans, carrying an interest rate of 6%, failed. For this scheme, 31%
is deemed perfectly acceptable: the ceiling rate for defaults is set
at 40%.
Indeed, the
Department for Business, Energy and Industrial Strategy goes further,
arguing the loans are “creating thousands of jobs and generating a
return on investment to the economy of £3 for every £1 spent.”
That calculation, of course, deploys a very liberal definition of
returns to include payroll taxes and the like.
Perhaps that’s
fine if you are pursuing a policy goal of filling a gap in the market
left by conventional banks, which was the justification for the
launch of the scheme in 2012. All the same, discipline in lending is
still meant to part of the mix. The line is thin between giving
entrepreneurs a boost and throwing public money at worthy but
unviable ventures. A default rate of 31% seems alarmingly high.
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