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The Rupp Report: They Never Give Up

Jürg Rupp, Executive Editor

Recently, the annual figures of the national gross domestic products (GDPs) of various countries of the European Union (EU) were published. Most of them are not very favorable compared to those for Asian countries. Most of them show a negative growth. Many Western industrialized countries not only are dealing with the aftermath of the financial crisis, but also with the long-term flattening growth of their economies.

Group Of 30
Now, some financial newspapers have published the message that the Group of Thirty (G30), an association of leading representatives of the global financial industry, warns urgently of the risk that insufficient long-term investment will occur worldwide in the coming years. They claim that this could weaken the growth sensitively. The G30 is a secretive panel of private bankers. Mario Draghi, president of the European Central Bank (ECB), and Bank of England Governor Mervyn King are among its members — but why is that so? The EU now wants some clarification: What is this group, and what do they want?

From 2006 to 2011, Draghi, an Italian bank manager and economist, was governor of the Bank of Italy, and since Nov. 1, 2011, has served as president of the ECB. He was also former vice chairman of Goldman Sachs International, and is currently also a board member of the Bank for International Settlements in Basel, Switzerland.

Who's Who Of Global Finance
In 1978, Geoffrey Bell, an American banker and economist, founded the G30 on the initiative of the Rockefeller Foundation. Bell is an extremely important and powerful advisor to private and central banks. Johan Witteveen, former managing director of the International Monetary Fund, served as the group's first chairman. According to its website, the G30 currently has 32 active members, which reflects a real Who's Who in the banking sector: In addition to Draghi and King, other members include JPMorgan Chase International Chairman Jacob A. Frenkel, chairman of the G30's Board of Trustees; and U.S. economist and Nobel Laureate Paul Krugman. Former ECB President Jean Claude Trichet is the group's chairman.

Conflicts Of Interest
Now, the Corporate Europe Observatory, an organization that fights against corruption, is blaming Draghi for a conflict of interest: The organization raises questions about Draghi's independence as a member of the G30, which is mostly entangled with large bankers. The cornerstones of the EU should be "impartiality, independence and objectivity" — factors that are obviously in strong conflict with practices at the G30.

In a self-declaration, the Group of Thirty states that "it is dedicated to the study of economic and financial phenomena." For this, the members meet twice a year to gain "a deeper understanding of international business and finance" and to understand "the impact of decisions in the public and private sectors." In it unclear to what extent the G30 is influencing the world economy. Having these confidential gatherings and the composition of the group — that is, its exclusive members — in mind, critics suspect unwritten and clandestine agreements.

According to a G30-commissioned study titled "Manufacturing the future: The next era of global growth and innovation," prepared by the consulting firm McKinsey Global Institute, the group claims that the investment needs of the nine largest countries — which together are responsible for 60 percent of the GDP — will grow from 30 percent of the GDP in 2010 to 34 percent in 2020. This would represent a real investment needs growth of US$7.1 trillion to US$18.8 trillion.

The authors believe that the global financial system will struggle to provide the necessary capital to provide for the expected surge in investment. The main sources of investment, subject to national differences, include self-financing by households and companies, which represents approximately one-third; governments, which represent 25 to 30 percent; and bank loans and mortgages, representing approximately one-third. The study claims that banks and governments, as a result of the financial crisis, are not able to do their job. That's why the "non-banking sector and the capital market should step much more into the breach," they state.

New Regulations (?)
Now, the G30 proposes to remedy "an array of especially regulatory measures to strengthen the capacity and willingness to long-term investments." That is strange.

On the other side, 11 EU countries — out of 27 member states — decided that from 2014, a uniform minimum tax would apply to bank and stock market transactions. The fact that not all EU member states want to participate should leave one wondering. The EU Taxation Commissioner in Brussels has presented parts of a proposal to introduce a financial transaction tax. The tax is expected to provide the Commission with annual revenues of 30 billion to 35 billion euros from the 11 countries. Financial experts say that this seems to be a fair and technically sound control, which would strengthen the internal market and bridle irresponsible trade.

With this tax, banks and other institutions should contribute to the costs of the financial crisis, which have been paid mostly by taxpayers. Liability for taxation should be placed only on financial institutions. Ordinary banking activities, credit and savings services, and insurance are not included.

The G30 says that portfolio managers of pensions and sovereign wealth funds should be more powerful, and, for example, might receive bonus incentives (!). But also, the group supports implementing accounting rules that "give the short-term market volatility of long-term investments less weight." And there is no limit -the "cooperation between the public and private investors could be developed."

The Purpose Of The Group Of Thirty
What is this Group of Thirty really doing, and what do they want? Board Chairman Frenkel said in January 2012 that "the effectiveness of the G30 is directly related to the quality and the status of its group members." What is the effectiveness of a private lobbying organization dedicated to directly influencing the world economy?

Many personalities from politics and business complain that bodies such as the G30 can hardly distinguish between public duties and private interests; and also that all that relates to politically relevant content and discussions and decisions can hardly be private. What do these people really discuss and negotiate? No one knows. Social networks are already on call to stop the G30. Now the European Ombudsman is trying to resolve the Draghi case and the question of whether the G30 will have some influence on the fortunes of Europe. One thing is clear: The top leaders of the financial world do not give up so quickly.

February 19, 2013