ECB policy Banking by the Book

Boštjan Jazbec, the head of Slovenia's central bank and a member of the ECB Governing Council, discusses the European bank's powers and its approach to the crisis in Greece.
Do I look worried?

As an International Monetary Fund expert, Boštjan Jazbec helped to set up Kosovo’s central bank and gained experience with emergency lending and crisis management. In 2013, he became president of Slovenia's central bank at the age of 43, some 30 years younger than his predecessor, Marko Kranjec. He inherited a banking sector on its knees, with two Slovenian banks requesting emergency lending in 2013 and 2014.

Slovenia became a member of the euro zone in 2007. Despite difficulties with the currency, Mr. Jazbec believes other European countries should join the monetary union. In Slovenia, it has promoted prosperity, he says.

Handelsblatt: The European Central Bank recently suspended special rules for Greek government bonds. Now they can no longer be deposited as collateral for bank loans. Why?

Mr. Jazbec: The rules are clear: The ECB can only accept Greek government bonds as collateral if the aid program is continued. The new government has sent a very ambivalent message in this regard. That's why we had to act.

The ECB has exercised enormous political power with its decision. But you and the other members of the Governing Council are not democratically elected. Do you approve of that?

Central banks are independent. That's why it is so important that we abide by our own rules. There are clear rules in the case of Greece. If we had not acted, we would have been asked why we were not abiding by the rules.

The ECB also approved additional ELA (emergency liquid assistance) loans for Greek banks at its meeting. Didn't that reduce the effectiveness of its decision?

This is the usual procedure, as it has been applied in many other countries – for example, in Slovenia in 2013 and 2014, when two of our banks needed ELA loans. The rules are very clear in this respect.

The ELA loans are actually intended to provide illiquid banks with short-term financial assistance in return for collateral. But can they also be used to bridge long-term shortfalls?

The decisions regarding ELA are reviewed every two weeks. The solvency of Greek banks is not in jeopardy at the moment. The ELA loans are intended precisely for this purpose. Besides, they are also coming from the Greek central bank. Every central bank in the euro system has this right.

Are there rules on when the ELA program should be halted?

If you look at ELA in 2009, during the financial crisis, and compare it with today, there were indeed a few adjustments. With ELA, we created a mechanism that puts ailing banks in a position to resolve their liquidity problems. It would be very risky and politically hazardous to question the rules. This is clear to all elected and non-elected officials in the euro zone.

So the requirements should not be modified in the case of Greece?

Slovenia also had to make use of ELA. At the time, we stated clearly how we intended to satisfy the requirements, and other countries that have needed ELA have done the same. For that reason, I see no need to question the requirements in the case of Greece. If that happened, we would have a big problem, namely the unfair and unequal treatment of members within the euro zone.

Could there be a situation in which the ECB were to put a stop to the ELA loans?

That risk always exists, which is why it's so important to closely monitor the situation. I am convinced the Greek banks and the central bank will do everything possible to avert threats to the financial system.

Nevertheless, there can be situations in which this can no longer be monitored, correct?

Of course, there can be situations like that. But that's a long way from what we see in the data at the moment.

The new Greek government has declared that the reform policy imposed by the troika was a failure. Do you see a change in attitudes in Europe?

I believe that the structural reforms work. There are various examples of this from other countries. The ECB cannot solve all problems. The goal of our monetary policy is to bring inflation back down to a level consistent with the mandate. But it also has to be supplemented with structural reforms.

Sometimes, we are unjustifiably scapegoated. But if you ask me whether I would like to be a scapegoat for something that benefits the European economy or helps us to fulfill our mandate, I'll be happy to be a scapegoat forever.

Why did the ECB opt for such large-scale bond purchases?

Our mandate is price stability. Because of price trends, we were forced to act. We have begun various things since June of last year, and we are completing the package of measures with the bond purchases (quantitative easing, or QE).

Critics say that the low inflation is linked to the price of oil. Are they right?

That is certainly a factor, which is why it's important for us to keep a close eye on price trends. The program can also be terminated early if inflation rises first.

The German Bundesbank, under Jens Weidmann, has criticized the bond purchases. Are you isolated in your position?

No, I don't see it that way. There are various points of view, which we can discuss in a civilized manner, at least in the ECB Governing Council. We all have the same goal: We want to bring price trends back to the level consistent with the mandate.

National central banks are expected to bear most of the risks associated with the bond-buying program. What do you think of that?

It's the right decision. We have a shared monetary policy, but nations are responsible for fiscal policy. That's why complete risk sharing would be unfair.

Let's talk about the Slovenian economy. Two Slovenian banks failed the ECB's stress tests last year. How stable is the financial sector at the moment?

I wouldn't say that the two Slovenian banks failed. The shortage of capital was known and was communicated. Both financial institutions were massively recapitalized in late 2013. Our banking system is fundamentally solid, and there are no banks with liquidity problems.

What does the future hold?

By nationalizing the troubled banks, the government helped to consolidate the finance system. Now it has to decide how to proceed with the market adjustment. As a taxpayer, I would like to see all banks operate so efficiently that taxpayer money will never have to be spent to bail them out again.

If there are fewer banks in the future, will Europe end up having more international or national banks?

As a regulator of financial markets, it's difficult for me to say how many banks should exist in the market. As long as the owners provide enough capital, it's okay with me. I just believe that the stricter rules, as a lesson from the financial crisis, will eventually lead to fewer banks.

Do you see more Southern European countries joining the euro zone in the medium term?

If I were a politician in a European Union country that isn't already a member of the euro zone, I would definitely try to become a member soon. In the case of Slovenia, the euro promoted prosperity.


Hans-Peter Siebenhaar is Handelsblatt's correspondent in Vienna. Jan Mallien covers finance and the euro zone for Handelsblatt Online. To contact the authors: [email protected] and [email protected]