Nicolas Véron

Op-ed on CNN.com: Fully reimbursing SVB depositors may prove to be a bad move

CNN.com today published this op-ed in which I express doubts about the wisdom of the unlimited guarantee of uninsured deposits, which the US authorities have applied to Silicon Valley Bank and Signature Bank with the consequence that the same will be expected in most or perhaps all future cases. While it is clear that the authorities needed to provide generous liquidity assistance this week, I am among those unconvinced that it was necessary to depart from the time-tested principle of limited deposit insurance, which I view as a regime change for US finance. 

Op-ed in ThinkChina: China's private sector has continued its rise against all odds

This op-ed co-authored with Tianlei Huang was published today by ThinkChina, the English-language operation of leading Singaporean daily Lianhe Zaobao. 

Op-ed in SCMP: What's next for China's private sector

This op-ed co-authored with Tianlei Huang was published today by the South China Morning Post. 

Collective paper on completing the banking union

I co-authored a collective paper on the incompleteness of Europe's banking union and how to address it in future reform, which was published earlier this week by the Centre for Economic Policy Research (CEPR) and is forthcoming at Bruegel. This is joint work with Thorsten Beck, Jan Pieter Krahnen, Philippe Martin, Franz Mayer, Jean Pisani-Ferry, Tobias Tröger, Beatrice Weder di Mauro, and Jeromin Zettelmeyer, following a workshop held at the European University Institute in September 2021. Click here to download the paper in case the above link is broken. 

Update (November 22): the Bruegel version was just published. Click here to download it if the previous link is broken. 

Interview on current EU financial services issues in European Commission Finance Newsletter

I gave an interview on the consequences of Brexit for the EU financial system, for the European Commission's Finance Newsletter (edited by DG FISMA). The full text is reproduced below with gracious authorization from the European Commission. 

Six years on from the Brexit referendum, the EU is still not fulfilling its full potential as an attractive place for market financing. Is the EU missing the opportunity of Brexit when it comes to financial integration?

The EU had a pretty integrated wholesale financial system before Brexit, with a clearly identified hub in London. London was acting as the central venue, with centralised supervision by the UK authorities under UK law. Now London is off-shore, it is clearly not sustainable for the EU to have the same critical reliance on London as it had when London was on-shore. What that means in practice is that we lose in market integration because the activity we have on-shore is scattered in various financial centres. This is not a problem in itself, but these financial centres are under different legal and policy regimes and that’s where the problem is. There are two possible solutions to this. One is that one of the EU on-shore financial centres would replace London. The other is that we have policy integration, so that activities can remain scattered geographically but are integrated in terms of the policy regime and oversight framework. Clearly the latter solution is better. But it would mean new impetus for policies that frankly have stalled – such as Banking Union and Capital Markets Union. And at this point, it is clear that Brexit has not triggered an acceleration of those policies.

You mention the Capital Markets Union – the Commission has already put forward a raft of measures under its Capital Markets Union agenda to support market integration. What is still missing to allow us to achieve deep and fully integrated capital markets in the EU?  

This debate is not new. I believe it goes back to 1965, with the first Commission report on financial markets integration. And frankly, many of the questions that were raised in that report are still open. So in a way it’s not surprising that the Capital Markets Union agenda is not moving quickly because it’s a long-term structural agenda. With that in mind, I would have two observations. First, one may question the wisdom of calling it a Capital Markets Union, as if it were a clearly defined project with a clearly defined start and end. I would argue that this is the case for Banking Union – it had a start and it hopefully will have a date of completion. I’m not sure that this is the same for Capital Markets Union to the same extent, so I would question the label. The good old days when we called it the ‘single market policy for financial services’ had some charm for me – but that makes me a nostalgic! The second, more substantial, observation is that the package of measures proposed by the Commission, going all the way back to 2014 when Jean-Claude Juncker first proposed Capital Markets Union as a label, have been useful but not transformational. I think – especially when you compare it with Banking Union, which is still very much unfinished, but where there has been a structural transformation – everything so far in ‘Capital Markets Union land’ looks a little bit incremental.

Have the recent crises – specifically the Covid-19 pandemic and Russia’s aggression against Ukraine – undermined our efforts to develop a genuine single market for capital in the EU? Or have they actually reinforced the need for one?

The pandemic has stopped a number of workflows and has delayed others, such as the one on anti-money laundering. But it has also resulted in one big transformation, not in the area of DG FISMA but something that has huge importance for what we are talking about and that is NextGenerationEU, which has demonstrated that large-scale issuance of EU bonds is possible. The consequences of that transformation will take time to unfold, but I expect them to be very constructive and a positive move in the direction of building a more integrated and better-developed European capital market. So that’s a plus. As for the Ukraine crisis I think it’s frankly too early to say, because we are still at an early stage, sadly. I am inclined to believe, but with no certainty, that the Banking Union agenda could have made more progress, and there could have been a better compromise in June, if Russia hadn’t invaded Ukraine. But of course we can never know. One of the big questions about the Ukraine war is whether it will create the need for more EU bond issuance, along the lines we’ve seen with NextGenerationEU. And again, I don’t think anybody has an answer at this point.

Looking at financial stability risks, the EU is still very reliant on some UK-based clearing infrastructure. Some believe that Europe should just legislate and move all the clearing business to the EU. What are your thoughts on this?

I applaud the Commission for its restrained and measured approach so far. Because the clearing infrastructure is very ‘sticky’, and the London-based clearing infrastructure is a global infrastructure, it’s not just a European infrastructure. I am thinking in particular of the reliance on London Stock Exchange clearing house LCH for derivatives clearing, which is at the core of this debate. So it’s important not to frame this issue in narrowly EU terms because that’s not what it is, particularly when it comes to market liquidity. I haven’t been convinced yet that relocation is necessary, even in the long term. Because the long-term vision for the EU market is that it is globally connected. So I’m not sure what the right answer is long term, but I think the Commission has been right to be cautious. Speaking of clearing and financial infrastructure, I want to highlight what I think is an obvious paradox and that is that the EU now has an EU-level supervisory capacity for LCH.Clearnet through the Central Counterparties (CCP) outfit that has been created within the European Securities and Markets Authority (ESMA). But it doesn’t have it for its own domestic critical infrastructure, which remains under national supervision with relatively loose supervisory coordination at ESMA. I think I’m stating the obvious if I say this doesn’t make any sense.

How close do you think we are to a truly integrated and independent EU-level supervision of capital markets?

I think the story of Banking Union and of anti-money laundering supervision has demonstrated the centrality of the question of supervision. Obviously I believe supervisory integration is needed for Capital Markets Union. But here I would make two additional points. Firstly, one thing we’ve learned primarily through the ‘Eurozone crisis’ is that it’s not really plausible that we would achieve a Capital Markets Union without completing the Banking Union. We can debate how far we are from completing Banking Union, but I think everyone agrees that we are not there yet. Even with the strong Single Supervisory Mechanism (SSM) at the European Central Bank, which is a pretty impressive achievement. Secondly, I would say that it is a bit simplistic to say ‘let’s just give more powers to ESMA over more market segments’. The reason for that is that ESMA was not designed initially as the EU market supervisor, just like the other European supervisory authorities (ESAs). It was designed for the more modest purpose of coordination of supervision and arguably doesn’t have the governance and funding framework to be an effective, independent supervisor itself. This is not a comment on individuals, but rather on the architecture and legislation that establishes that architecture. And the only way to fix that is through change to the ESMA regulation. In a way, the SSM, and soon the Anti-Money Laundering Authority, show the way. And you could say the same to a certain extent of the Single Resolution Board. You need a more compact board, you need financing by levies on industry, those elements that establish an architecture that makes ESMA’s supervisory decisions de-politicized, independent and based on the supervisory mandate, which I’m not sure is the case with the current architecture. So this would be an important caveat: let’s not think of policy integration as just accruing more mandates on ESMA, at some point there has to be a reform of ESMA that makes it fit for purpose as an effective, independent supervisor. Finally, at a more general level, I would say I have perhaps a kind of old-fashioned view of the role of the Commission – I think it’s there to keep the discussion honest among Member States. So although I’d like to see faster progress, ultimately I think that these things take time.

Nicolas Véron speaks here in his capacity as a policy observer at Bruegel and the Peterson Institute. He is also an independent non-executive board member of DTCC Data Repository (Ireland) Plc, which is supervised by ESMA.

© European Union, 2022

Xavier Corberó's Impossible Palace

News media yesterday reported that the town of Esplugues near Barcelona was purchasing the sprawling complex built there by Catalan sculptor Xavier Corberó from the late 1960s to his passing away five years ago. Pablo Bofill and I wrote about it for the inception issue (No. Zero) of the recreated art magazine FMR, which was published in December 2021. As the property's purchase opens a new era for this extraordinary place, the text of our article is reproduced here with gracious permission from Laura Casalis at FMR. 

Xavier Corberó was the ultimate escape artist. He averted categorization so intensely that his life’s masterpiece, the palatial house/landscape/retreat/workshop/shrine he built both for himself and for posterity near Barcelona, never received a proper name. Nor would he explain it, what it was or what it meant. Instead, he had stories: many stories, phenomenal ones, that changed a bit every time he retold them. Ever the illusionist, Corberó saw reality as something to mold like clay—another medium he could sculpt or carve into whatever shape he fancied. He could reconcile contradictions since he was also the most elegant of men, a dandy from a bygone era. And the most ruthless. What we will call here Corberó’s palace, for lack of a better word, is as elusive and paradoxical as he was: harmonious and raw, solid and crumbling, vast and claustrophobic, timeless and tacky, an empty space that is full of life. Although he died in 2017, he will live on as long as the palace remains.

Corberó did accept one definition of himself. He was a sculptor. “It’s a birth defect,” he quipped. His grandfather and father had been metal artists, originally in the inland town of Lleida and then in Barcelona where the family workshop cast bronze for the great Catalan sculptors of the early twentieth century, such as Pablo Gargallo and Frederic Marès. He started with bronze too, and had his first works in this medium exhibited at the 1955 Hispano-American Biennial in Barcelona, when he was barely twenty years old. One of his favourite stories was that, unbeknownst to him, Salvador Dalí had found the sculptures so good that he bought them all. He would later work with other materials that were equally dense, hard and durable – onyx from Iran, marble from Almeria, or rugged basalt from the village of Castellfollit de la Roca in northern Catalonia. When one of his monoliths was installed in a corporate office lobby in Chicago, it turned out to be so heavy that the lower level had to be restructured to reinforce the floor. When much of downtown Beirut was ravaged by the tragic port explosion of August 2020, a group of Corberó sculptures was among the few things that remained entirely unscathed.

The palace in Esplugues de Llobregat, on the outskirts of Barcelona, is where we may discover Corberó. Over the course of nearly five decades, he constructed a labyrinth of chambers, hidden courtyards, and hanging gardens, as if one ant could build an entire anthill. “Everything that I have ever done can be found here,” he said of the complex of multiple interconnected buildings on both sides of the narrow and winding Carrer Montserrat (Montserrat Street).

From outside, the vast edifice could not be more inconspicuous. Most exterior walls are covered in ivy. The entrance doors are small and discreet. Corberó made sure that the scale and complexity of the place could not be perceived unless one was allowed inside. But beyond the threshold, it quickly becomes humbling and disorienting to wander through the grand spaces, many of them magnified by mirrors and distorted perspectives that blur the visitor’s usual points of reference. The unfamiliar experience leads to a feeling of loss of control, exactly as Corberó intended. In his palace, he was the only one in control.

Just as almost none of it can be seen from the street, there is no attempt inside at a visual relationship with the surroundings. It is a self-contained world, like the patio-centered houses of Roman and Arabic Spain that were among its inspirations. The only exception is an opening towards the garden of a nearby Dominican monastery with its tall, beautiful cedars. Climbing to the upper floors, one gets expansive views of the mountains and the sea, but Corberó rarely venture to visit either, preferring instead to enjoy the domain he had himself created.

Corberó’s architectural practice was that of medieval cathedral-builders, who did not distinguish between design and actual construction. He would wake up in the morning and figure out a new arch, a new space, something else. He lived in a minuscule part of the complex. The rest he might occasionally call a museum, a hotel, a bunch of apartments, a spa for the mind, or a poem, depending on which day you asked. His favorite ways of occupying it were to give a tour to a dazzled passer-by or chat with the workers who were busy trying to complete the incompletable. His fantasies are beneath every architectural layer, in every corner of the endless maze of arches and staircases to nowhere. Optical illusions, Escher-like false repetitions, mischievous twists in the geometry are everywhere. He had an exquisite sense of scale, arguably the key to all he did. “Scale is everything,” he loved to say. Or in a rare expressive moment: “if you get the scale right, space stops being space to become mind. And this happens in a sculpture just as it happens in architecture.”

Corberó’s dream of Esplugues began to materialise in the late Sixties. Until then, he had lived a high-Bohemian lifestyle, winning more and more awards for his sculptures, befriending the likes of Dalí, Miró or Matta, spending time in New York, building relationships with wealthy clients in Mallorca, on Wall Street and in Hollywood. But he never became one of them, an art star who embraced the high life of the super-rich. To be sure, he had seen the world, and he kept his prodigious powers of charm to the end. But he would increasingly dedicate himself to his house and its hidden, fantastical universe. He would spend money whenever he got it and never save. In any case, it was his sculptures that anchored him: they were his monetary reserves, his means of exchange, and quite conceivably his unit of accounting. If money got tight he could just sell one, and create another, as needed. Corberó produced his wealth from metal and stone in his studio, which was quite literally an alchemist’s laboratory. He was also wise enough not to devalue his currency.

By the time he settled there, Esplugues was an industrial suburb with a characteristically Catalan mix of small-scale agriculture and light manufacturing, in the Southern foothills of Collserola Mountain that dominates Barcelona. Corberó started to acquire (he would later say that he “occupied”) a potato farm and other plots and houses on the slopes bordering Montserrat Street, some of them connected since ancient times by underground tunnels; the name Esplugues means caves. That soil was rich with history and memory: two of the houses he bought on Montserrat Street, Can Cargol and Can Bialet, are now protected as local cultural heritage. (Can is “house” in Catalan.) The Dominican monastery next door keeps trophies from the sixteenth-century battle of Lepanto. The way he used to tell it, he had simply showed up, moved in, and started building. He unsentimentally tore down some of the existing houses to free space; he didn’t bother with permits.

His expanding compound soon attracted a steady stream of creative visitors, many of them for extended stays. As a New York Times article described it in 1973, artists would “pop in from all over the world, phoning from the airport to see if there [was] a free bed.” Whenever he ran out of beds, guests bunked on an enormous, carved billiard table (“it sleeps six,” he told the Times) or down in the dirt-floored potato cellars that snaked beneath the studios. Joan Miró’s etchings were produced there, as was the silver and ivory jewelry of Elsa Peretti, who joined Corberó’s commune as an Italian socialite and emerged as a recognized designer.

Corberó was born in Barcelona in June 1935, in a bourgeois environment of comfort, culture and optimism. His father had been involved in the development of the Barcelona Futbol Club, the local community’s pride that is now a global icon, and co-founded the Massana arts school, which Corberó would later attend as a teenager. But the Spanish Civil War erupted when he was barely more than a year old, and his family’s world suddenly disappeared. Corberó used to tell the tale that the first word he uttered was “bomb.” His early childhood was grim. His mother (named Montserrat, like the Esplugues street) died giving birth to a younger brother, who succumbed to smallpox shortly afterwards. His father was absent, on the front fighting for the increasingly desperate Republican regime and later imprisoned by the Francoist victors.

As he grew up, art became his ticket out of the oppression and tedium of Franco’s Spain, which he summarized as “no food, no books, no films, no nothing.” Barcelona’s established arts community, both stuffy and suffocated by the regime, was not for him. He would hang out with drug addicts and drifters, or spend time with outcasts from Barcelona’s Roma community. He liked to pretend to be a gitano himself, and people would believe him because he really knew how to dance, from flamenco to everything else. Our connection to him also dates to this period. Among Corberó’s anti-Francoist friends was the slightly younger Ricardo Bofill, who was father to one of us and mentor to the other. Ricardo’s father Emilio, himself a respected architect and builder with a rebellious streak, had worked with Corberó in the early stages of his Esplugues construction odyssey. Corberó’s only daughter Ana, an accomplished visual artist on her own, married Nabil Gholam, a rising star on Bofill’s team who went on to found one of the Middle East’s most creative architecture firms.

During Corberó’s lifetime, his palace was less architecture than theatrical performance. Much of the place was nominally organized into apartments, with prominent attention devoted to the impeccable marble-lined bathing pools. But these were not seriously meant to be lived in and rarely were. (The real apartments for artists-in-residence were on the other side of Montserrat Street, in Can Cargol and Can Bialet and the outbuildings that Corberó had added.) No outsider would enter the place without Corberó or wander in it at their own pace. The master would guide his starry-eyed visitors through a well-practiced choreography of sequential episodes, with witty asides, impromptu pranks and the occasional cliff-hanger. In the excruciatingly slow-moving lift, he would suddenly unleash chaos by triggering the alarm. Bawdy allusions often followed. In an exterior courtyard, where immobile basalt figures surrounded a square pond, he would flick a hidden switch causing a powerful waterfall to start rumbling above their heads, that landed with a boisterous splash in the previously quiet basin. (The mechanism was so fine-tuned that they wouldn’t be touched by a single drop of water.) He carried his cumbersome chain of keys like a medieval lord in his dungeon.

Most spaces are populated with objects that Corberó had either collected or created, and each object had its own story that only he could tell – sometimes it was an anecdote involving a real person (whether the anecdote itself was true or not remained open-ended), at other times it was the invented life story of the object itself. He gave most of his sculptures nicknames and attributed powerful emotions to them. (Names he gave to a set of basalt giants loosely inspired by chess pieces include: Mr. Skullrich, Nessie, Rocinante, Monsignor Triangle, Her Majesty the Queen, Mr. Cochise, Mr. Empty Head, Miss Capicua.) Some of the works are explicitly figurative (though never naturalistic), others are entirely abstract, and many are somewhere in between. After being given the tour, it was impossible to think of any of them as not having complex inner lives of their own. At one end of the Esplugues compound, in an open-air courtyard, the larger-than-life semi-figurative basalt shapes look like they’re quietly conversing, exchanging the latest gossip and old memories under the trees. He joked, “A sculpture is like an unwelcome brother-in-law, if he stays in your house he can bother you all your life.” In his own house, his intimidating totems, gigantic abstract balls and silky smooth perforated marble panels were the real inhabitants.

He had a way all of his own of flaunting his proximity with many of the century’s greatest artists without sounding like a braggart. At the top of his personal firmament was Dalí. “[Dalí ] would ask, ‘What are you up to?’ and I would answer, ‘I’m learning to lay eggs’,” Corberó told Alberto Moya in 2015. “I thought that was the best business of all—laying eggs. And also because I consider making artworks to be a bit like laying eggs. It’s something that comes out naturally and you just keep on going, you keep on laying.” He claimed credit for the monumental egg sculptures that memorably adorn Dalí’s personal museum in Figueres and his home near Cadaqués, on the Costa Brava northeast of Barcelona. Another mentor whose memory he particularly cherished was gardener and landscape architect Russell Page. He was also fond of Robert Hughes, the art critic, who had the supreme honor of having his own bedroom in the main complex.

Rooms were filled with Persian carpets, precious wood furniture, Louis Vuitton trunks, improbable industrial objects and ubiquitous, amazing art he had made or bought or that had been given to him. A (working) Rolls-Royce greeted guests in the middle of a living room. Other areas were strewn with old boilers and appliances bearing the Corberó brand, manufactured by a commercially successful branch of the family. “They are my uncle’s,” he would say. “He tried to draw an Immaculate Conception and what came out was a washing machine.”

If he wasn’t giving a tour, the master could usually be found in one of three small rooms. In the living room, a television would blast campy telenovelas. In the kitchen, Matías, Corberó’s adopted parrot, would periodically scream “Xavier! Maricón!!!” The fridge was usually empty except for a bottle of excellent champagne or extravagant tins of foie gras or caviar, as well as Corberó’s favorite cigarettes. The bedroom faced a serene sunken garden. His bed was piled high with newspapers and gossip magazines, and in winter, wood would burn quietly in the sleek cubist fireplace.

He maintained pockets of mock-Trumpesque vulgarity that he claimed were his favorite parts of the place. When visitors arrived, the first thing he rushed to show them was a gleaming lift (the one with the surprise alarm) lined with faux gold and faux briarwood, which he claimed to be most proud of. He called it the Benidorm or Marbella lift, and pretended it was “the most fantastic space” in his home. “To attain supreme good taste, you need a touch of bad taste in the mix,” he would explain half-jokingly. He played other mischievous pranks with ingenious lighting and half-mirrors.

Gadgets were everywhere and he always play with them. Pressing a button would open a wall to reveal a secret staircase. Visitors would stumble upon a huge collection of erotic magazines, then some pictures of him with Marcel Duchamp. Inside a plain-looking armoire you’d find a precious Biedermeier chest instead of shelves. Every corner held small sculptures with which he always chatted, while the larger ones, his best friends, kept watch.

Once he completed a room, he never changed it. It was not a place that was constantly being renovated. Rather, it is an accumulation of chambers from discrete period. He would select some carpets, some striking shirts and hats (he collected hats the way that Imelda Marcos collected shoes), some beautiful furniture, then it remained exactly like as is for the next 20, 30, even 40 years. As a result, an increasingly large expance became frozen in time, but the perimeter also kept expanding. As soon as he was done working on one space, he needed another one to arrange and style. “For me, a house is like a diary,” he said. Lluís Lleó, a Catalan artist who knew Corberó well, has rightly described the Esplugues complex as a self-portrait.

His artistic integrity was as absolute and undiluted as his personality was convoluted and, occasionally, manipulative. Any theory or systematic discourse about art, to him, was an object of ridicule. Works of art spoke for themselves, otherwise they were not art. Of people who developed interpretations of his work, he would say “this is exactly the opposite of what you have to do if you become an artist. You never talk about your art. You just do it and never give an explanation. The people who need an explanation are the people who cannot contemplate it; who cannot enjoy it; who cannot see it.” He also said: “I hate artists talking to artists. You have nothing to explain to each other.”

Corberó cared for the public good, albeit very much in his own way. In the 1980s, he was instrumental in a program of monumental sculpture that transformed the face of Barcelona. Together with his associate, New York art dealer Joe Helman, and in liaison with urban planner Josep Acebillo, he persuaded the era’s most acclaimed international art stars to donate their work out of consideration for the return of Spanish democracy and Catalan pride and as a personal favour to him; the city only paid for materials. Roy Liechtenstein’s colossal head in the Old Port, Richard Serra’s curved wall on the Plaça de la Palmera, Brian Hunt’s Rites of Spring installation in the Parc del Clot, and Beverly Pepper’s frozen wave in the Parc de l’Estació del Nord all came about in this way. The government of Catalonia later awarded Corberó one of its highest honours in gratitude for his role in making this all happen. He was also commissioned to design the medals for the Barcelona Olympic Games in 1992. He insisted they be made of solid gold, something that had never been done before.

Whereas most of Corberó’s sculpted works are weighty examples of physical fullness, the Esplugues palace is made of spaces built on and around voids. One of its focal points is a six-story-high octagonal shaft that brings light to a cavernous, quarry-like basement. Some of Corberó’s most haunting statues, of pinkish marble and pitch-black basalt, find their natural habitat there. This element, to use Corberó’s own metaphor, is the axis of the kaleidoscope: much of the Esplugues complex seems to rotate and shape-shift around this empty column of light. But that would be too simple, so other voids define different expanses around it. There is a cathedral-sized underground hall, completed in his later years, accessible by tunnels that he carved into the bedrock like Egyptian hypogeous tombs. Above it stands the most recently built and also perhaps the most iconic (and Instagrammed) piece of the puzzle, an empty plaza “à la De Chirico” bordered by irregular arcades with no apparent function, some of them suspended as if rested on invisible pillars. If Jorge Luis Borges did not provide a precise picture of the nonsensically rebuilt city described in El Immortal, Corberó has done it for him here. There is no obvious reason for the endless arches. Corberó just liked them and wanted to make more. The result is a magical accumulation of unique elements, amplified by the inevitable use of mirrors. The arches create repetitive movement, although every arch is different. While the vocabulary is superficially classical, the structure does not conform to any strict norms of proportion or geometry. The geometry of Corberó’s project is more subtle. It does not follow explicit rules and he plays tricks with it, alluding to a vernacular architecture that is not associated with formal knowledge or references. It is also very beautiful.

“When people look at a piece of art they become artists,” Corberó once told an interviewer, “they see what they see, not what there is. What there is helps them to see something else and they feel happy because they see something they were not seeing before seeing that.” He added: “That’s the result I like to achieve.” As with Corberó himself, the palace’s ability to defy simple description accounts for much of its fascination. Despite his insistence that each piece of it would be the ideal home to aspirational artists-in-residence (thus all the bathing pools), it is essentially uninhabitable. One part of it served as Corberó’s industrial-grade sculpture workshop, but it is unthinkable that anyone other than him would ever use it for that purpose. The Esplugues compound most closely resembles a museum, but it is not that either. The proximity with the objects is too great to imagine any visits other than guided tours in tiny groups. Indeed, at the time of writing, its future is uncertain.

Meanwhile, it is entirely implausible that Corberó would have thought of his palace as an ephemeral installation that would disappear with him. He was lucky, as it were, to die when he did, when the work was almost complete but not quite finished. It was an evolution, not a conclusion. He had created a world of his own, a world with its own protagonists, and the palace has continued to evolve as more characters were added, in dialogue with shapes and spaces. All the same, everything here speaks of permanence, even immortality: the hard, durable materials, the hieratic poles, the stark light, the colossal scale. Corberó managed to be simultaneously self-effacing and all-consuming. His palace, built as it is on voids – the octagonal shaft, the underground cathedral, the empty plaza, the still pond – is also a massive monument such as no self-respecting Ozymandias would have disdained. It is a temple to art for art’s sake, a temple to himself, and a temple to absence – the kind of absence that makes you suffer or wonder in silence.

Contribution to The International Economy's debate on global impact of the war in Ukraine

The International Economy magazine just published my contribution at the end of a collection of short essays about the war's global impact. I note that the U.S. and Europe need to work harder at gathering a broad global coalition to support their rightful pro-Ukraine stance. Click here in case the above link is broken. 

Ricardo Bofill, December 1939 - January 2022

Ricardo Bofill passed away yesterday in Barcelona. Obituaries are multiplying and generally emphasize his boldness, unique sense of scale and space, and unwillingness to yield to convention or fads. For me he had been a mentor and friend for nearly three decades, since I completed my training at Ecole Polytechnique with a three-months internship at his firm's offices in Barcelona and Paris, in the spring and early summer of 1992.

He subsequently offered to work together on a book of ideas about urban design, which was written in French and published in 1995 (L'Architecture des villes, Odile Jacob publishing). For this I had multiple preparatory discussions with him, at his famed house and offices near Barcelona, at his no less memorable family house in Mont-ras off the Costa Brava, or at the apartment he kept at that time by his firm's Paris office. After the book was done, we did not lose touch and I visited regularly in Barcelona and/or Mont-ras. I have also been in frequent contact with Pablo, his younger son, who was more often in Paris, especially in recent years. 

He had a powerful vision of the importance of architecture and of livable cities, which he expressed first and foremost in his projects but also in numerous writings. A recent synthesis is in the lecture he gave a few months ago when the Polytechnic University of Catalonia (UPC) awarded him an honorary doctoral degree, a kind of reparation gesture (for which the UPC's Félix Solaguren-Beascoa deserves much credit) 64 years after having expelled him as an anti-Francoist student in 1957. I was greatly honored to be invited to participate in a series of pre-recorded tributes delivered during that ceremony, together with Elia Taniguchi, Paolo Portoghesi, and Norman Foster; the video of the event includes Prof. Solaguren-Beascoa's oration, the four tributes, Bofill's acceptance speech, plus assorted pomp and circumstance in Barcelona's extraordinary church of Santa Maria del Mar. 

He has had considerable influence on the way I look at the world, at buildings and landscapes, and at cultures and history. For me, as for many others, he will remain a major inspiration and reference. Even though he is no longer around, his work and ideas live on. 

Tailoring Prudential Policy to Bank Size: analysis for the European Parliament

Together with my Bruegel colleague Alexander Lehmann, we prepared an in-depth analysis on size-based differentiation or "tailoring" of prudential requirements for banks, comparing the structures and policy regimes in the euro area and the United States. Among other findings, we highlight the much greater number of stand-alone smaller banks in the US than in Europe, and advise against further tailoring in the near term in the euro area. 

Download the paper here in case the link above is broken. 

Brexit and European Finance: Prolonged Limbo

In this article published today by CESifo, I present a summary assessment of the current state of evolution of the European financial system in the wake of Brexit.

Download the article here if the link above is broken. 

An optimistic take on NextGenerationEU

The Paris-based think tank Groupe d'Etudes Géopolitiques kindly invited me to contribute to a collection of short takes on whether the EU improved its "strategic autonomy" in 2020. With the text below, I gave a score of 4 (on a 1-to-5 scale) based on the NextGenerationEU recovery plan and its consequence of establishing EU bonds as a reference for sovereign debt markets. The full collection is here (or here in PDF), and also here in French (PDF). 

From an economic and financial policy perspective, the agreement on the recovery plan has been the most momentous European development of 2020. Much coverage has gone to the arduous negotiations and to the challenges of apportioning the money and spending it wisely, not least as it entails grants to member states. But arguably the most lasting and structural consequence is about something else: namely, that the plan will be financed by direct issuance of securities by the European Union, or EU bonds. Whereas the EU has been issuing bonds before, the Recovery plan volumes are unprecedented. That changes everything. In the next few years, EU bond issuance will be of the same order of magnitude as that of a large EU member state. EU bonds will become a reference point for the European sovereign debt market. Their interest will be lower than that of most member states, and it will be clear to everyone that they are the best way to finance EU policies – in practice and not just in theory. After a few years, their termination will be rationally viewed as implausible. EU bonds will be used to fund other spending programs, and possibly to refinance the reimbursement of those issued for the Recovery Plan. Even though the question of which “own” (i.e. fiscal) resources back them does not need to be answered immediately, an answer will be found over time. As German finance minister Olaf Scholz and others have put it, the recovery plan may not be a fiscal union yet, but it is a decisive step towards it.

My take on NextGenerationEU, in The International Economy

The latest issue of The International Economy magazine features a collection of 32 short opinions by analysts on both sides of the Atlantic, on the historic significance of the NextGenerationEU deal of July 21 and whether it represents a "Hamiltonian" moment. Here is the PDF version of the entire series. The text of my contribution is below. I also commented on the whole series on Twitter. 

The EU budget deal of July 21 marks a historic moment, because it’s the first time that the European Union has acquired significant financial firepower of its own. (There was something of that in the original European Coal and Steel Community of the early 1950s, but it was small in scale and soon phased out.) The debt issuance capacity will establish the European Union as a significant player in official bond markets, in the same league as large EU member states in terms of volumes and liquidity over the next few years.

As for semantics, irrespective of whether the moment is deemed Hamiltonian or not—keeping in mind that the institutional development path of the European Union is completely different from that of the United States—that EU debt deserves to be called a Eurobond. Eurobonds were the matter of much debate over the past decade, and widely considered utopian (including by this observer) until German Chancellor Angela Merkel’s astounding volte-face on May 18, 2020. That’s when she and French President Emmanuel Macron jointly announced their support for what has now become the stimulus package, or in Brussels jargon, NextGenerationEU.

Of course, the official discourse is different: the EU issuance is proclaimed to be a one-off process that does not set a precedent, is thus not a permanent feature, and is thus not a Eurobond. In the short term, this discourse is necessary to ensure political consensus. But investors have already seen through it.

Once established in the financial landscape, EU debt will become such a central reference in the EU financial system that recurring recourse to it will be obviously preferable to alternative options—including but not limited to partial refinancing of the NextGenerationEU debt itself when it comes due.

Euro taxes—or in Brussels jargon, “own resources”— will be discussed for that debt’s reimbursement, and there’s an ultimate backstop from member states, but the volumes at stake are large enough that full reimbursement without any refinancing won’t be the optimal way to deal with it, either from a political or financial standpoint. And new needs will come up for which more EU debt will be the best financing option.

Does that imply fiscal profligacy? Probably not. EU spending financed by EU debt will be more tightly controlled than national spending in many member states, for which it will partly substitute. Meanwhile, the risk of euro area break-up has been dramatically reduced. As a consequence, euro area sovereign spreads are permanently compressed, because that “redenomination risk” accounted for much of the spread volatility of the last decade.

But another medium-term consequence of the emergence of EU debt as the reference safe asset is likely to be more junior status for national sovereign debt, resulting in tighter market discipline. If so, that should be viewed not as a bug, but as a feature. 

Georges Véron, French Chef in Upper Hungary

For once, this post is family-themed and unrelated to my work. Its origins go back to August 1983, when my grandfather Georges Véron died while I was 11 years old. At the burial ceremony in Thury (Burgundy, France), where he had been the village doctor for decades, his eulogy mentioned that he had been "born in Nitra (Hungary) on 4 January 1915 from a French father and a Swiss mother." I knew that my great-grandmother had been Swiss: she was referred to in family discussions as "Mémé Bâle", having spent her later years in Basel. But I was puzzled by the Nitra/Hungary bit. My father told me that Georges's father, also named Georges with an end 's' as is customary in French, had been a cook for some grand Central European aristocrat "à la Esterhazy" - the reference to Haydn's benefactors was natural, since classical music was big in the family tradition. (To avoid confusion, in the rest of this piece I refer to my great-grandfather as Georges, and to my grandfather as Georges Louis, even though the latter also always went by Georges.) 

Eulogy of Georges Louis Véron, my paternal grandfather, pronounced by André Grossier on behalf of Thury's municipal council, 13 August 1983

I was reminded of Nitra in 1993 while working in a glass factory of the French building materials concern Saint-Gobain in Potsdam, Germany. One day visitors came from Nitrasklo (literally, Nitra glass), a partner company in what had just become Slovakia. As I realized their hometown was the same place where my granddad was born, I thought I should investigate more about the place and the story, but failed to follow up. Then in October 2009 at a conference in Bodrum, Turkey, I met Katarína Neveďalová, then the Member of the European Parliament for Nitra, who kindly invited me to come and visit after I told her of my fuzzily-understood Nitra connection. Eventually, the trigger to search for more came in July 2017, when my father unearthed a beautifully calligraphed letter from a box of old family archive. 

Certificate of recommendation about Georges Véron by Countess Margaret Apponyi, 8 March 1918

The letter is written in quaint and florid, nearly faultless French. It is signed "Comtesse Louis Apponyi née Marguerite Comtesse de Seherr Thoss", by then the widow of Count Louis (Lajos) Apponyi who had been the Marshal of the Court for Hungary (Hofmarschall in Ungarn) of the Austro-Hungarian Empire from 1895 to his death in late 1909. In her letter titled "Certificate", the Countess attests that "Le sieur George [sic] Véron" worked in her service as chef de cuisine from 1 January 1904 to 1 March 1909. She praises his personality - "faultless conduct, good manners, sweet character" - and cooking ability - "his cuisine is excellent, delicate and elaborate" (excellente, délicate et recherchée). The latter skill, she continues, shone in the "grand official dinners, ball buffets and evenings" that Count Apponyi "gave to the Court, to the Diplomatic Corps and to society." She then notes that "his health called for a relocation" in 1909 and that she was "very sorry to let him go (son état de santé exigeant un changement d'air, j'ai dû à mon grand regret me séparer de lui.)" She ends by recommending him "very warmly". 

Birth Certificate of Georges Véron, issued 22 July 1941

Georges Véron was born 1875 in Le Mans (Sarthe, Western France), from what family lore remembers as a family of poor peasants in a nearby village. In 1901 he had married one Marguerite Charlotte Coupechon in Paris, but she died giving birth to their daughter Hélène. Hélène ended up at the Daughters of Charity of Saint-Vincent-de-Paul, going by Sister Véronique and/or Sister Jean-Gabrielle depending on sources - in the 1950s at the Daughters' convent in Blacy near Vitry-le-François, where my father visited her, and in the 1960s in the mining country in the North of France, where she died in a car accident. It is probable that Georges left Hélène to the care of the Daughters of Charity before taking the chef job in Hungary, but there is nothing about that transition in either family memory or surviving documents. 

"Der Kaiser hält Cercle", court scene at Buda Castle shortly after Count Louis Apponyi's appointment as Hofmarschall in Ungarn, and less than a decade before my great-grandfather's time there. Count Apponyi is the standing figure holding a ceremonial staff right behind Emperor Franz Joseph. Next to him, on the picture's far right, is Prime Minister Sándor Wekerle, and behind them is Cardinal Vaszary. Rotogravure based on a painting by Arthur Lajos Halmi, 1898, now at the Austrian National Library

The Countess's letter makes it possible to imagine Georges's whereabouts between 1904 and 1909. As Marshal for Hungary, Count Apponyi's functions were held primarily in Buda Castle and in Gödöllő Palace, with some more possibly in Vienna and Oponice - then known as Appony, the family's ancestral lands in what is now Slovakia. In Budapest and Gödöllő, the Apponyis presumably lived in the palaces ex officio. In Vienna they had a comfortable town house which they had commissioned in 1880, and in Oponice they had the family castle, built in successive phases between the 16th and the 19th centuries. The latter was restored in the late 2000s after considerable damage under Communism, and is now a hotel branded Chateau Appony. I stayed there for a night in November 2019, and visited the lovingly rebuilt Apponyi Library. Since the Countess's letter does not indicate a specific location for Georges's service, it is plausible that he would have travelled with his masters and worked in all these properties. 

Apponyi Castle in Oponice, Slovakia, now Hotel Chateau Appony

After leaving the Apponyis' service in March 1909 Georges reappears in 1910 in Davos (Eastern Switzerland). Davos was not yet the watering hole of the global elite that Klaus Schwab made it into, but its climate was already recognized as ideal to cure lung diseases, as would soon be made famous by Thomas Mann in The Magic Mountain (1924). This suggests that the illness alluded to by the Countess may have been tuberculosis. In 1909-1910 Davos also featured a stationery shop and/or bookstore in a building known as Villa Erica. In there worked a young woman from Biel/Bienne named Claire (Clara) Mutschler. (Biel/Bienne, as its name hints at, is often dubbed the most bilingual place in Switzerland; the Mutschler family would switch effortlessly between German and French, as did Georges Louis in his youth.) The family archive has a love letter of Georges to Claire dated 14 June 1910, which suggests that their relationship was already intimate. They would marry in Davos in early April 1911.

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Georges Véron and Claire Mutschler. The picture of Georges, undated, was made in Topoľčany, a town north of Appony and Kovarce; the picture of Claire was made in her hometown of Biel/Bienne, probably in 1910 as it was kept inserted in a love letter of that date. 

However, Georges was not done with Upper Hungary, as the territory of today's Slovakia was known at the time. By the summer of 1910 he was in Kovarce (then known as Kovárcz), a village to the immediate north of Oponice/Appony. A letter he sent to Claire from Kovarce, dated 6 September, gives directions for her to join him there: take a night train from Davos to Vienna; then take the Vienna-Budapest line and stop at Érsekújvár, now Nové Zámky; then take the local train from there to Szomorlovászi, now Koniarovce, where Georges would pick her up with a car. The letter mentions that he had traveled that itinerary in June.

The same letter refers in passing to a Madame Cardéza as Georges's new boss. Mary Cardeza was the French-born wife of American Thomas Cardeza, heir to a financier family from Philadelphia - his grandfather had founded Fidelity Trust Company, now part of Wells Fargo. The couple had been renting the village castle of Kovarce from the Apponyi family since 1906. Ostensibly Georges became their chef de cuisine in June 1910. We know that Georges was still in the kitchen because he is referred to as a cook on Georges Louis's early-1915 birth certificate. 

The Kovarce castle where Georges worked in the 1910s while in the service of the Cardeza family, now a mental health institution. I was not allowed to venture inside on my visit in November 2019. 

Why serve the Cardezas in Kovarce rather than Georges's old employers the Apponyis in Oponice next door? Count Louis Apponyi had died in December 1909. The surviving Apponyis were no longer duty-bound to entertain the Imperial court with lavish French cuisine. They also faced chronic financial tightness: back in 1892, Count Louis already had to sell some of the family library's choicest items. By contrast, the Cardezas were wealthy and had a suitably flashy lifestyle. Thomas Cardeza and his mother were on board the Titanic in April 1912, in one of the ship's two most luxurious cabins; they survived, and their lost valuables were insured. With all this in mind, it is not too surprising that in her March 1918 certificate, Countess Apponyi does not allude to Georges's return to Upper Hungary after leaving the family's service in 1909, even though she may well have known about it. By that time, moreover, the Cardezas had returned to the United States and were now, from the Countess's perspective, on the enemy's side. 

Memorial slab commissioned by Countess Margaret Apponyi in 1910 in honor of her recently deceased husband Count Lajos Apponyi, on the side of the Apponyi family burial chapel in Oponice's village church  

From the surviving archive one infers that Claire's stay in Kovarce in autumn 1910, if it happened at all, did not last long, since there are several letters sent by Georges to her in Switzerland in November and December. One of the letters, written on Kovárcz letterhead and dated 24 November 2010, appears to hint at a project of Georges to work with Claire on the Davos shop: "Tant mieux que le commerce marche bien et j'espère que avec toi qui fais si bien et si aimable dans le commerce notre petite affaire pourra nous donner assez d'argent pour nous permettre de vivre bien gentiment et nous travaillerons bien pour aussi économiser un peu plus d'argent" - from this text it seems that notre petite affaire is the same as the commerce where she already works. This hypothesis is supported by an undated card advertising the shop at Villa Erica under Georges's name, whose vaguely Secession style is consistent with a date in the early 1910s: 

There are no letters from 1911 in the family archive, but a number of postcards sent by Georges (from Kovarce) to Claire (at Villa Erica in Davos) in 1912 and 1913. There's also a postcard sent in July 1914 by Georges to his mother in Le Mans, with a picture of him and Claire in Kovarce; and a poignant letter from Georges to his brother, dated 3 August 1914 at the very beginning of World War I (see below). By that time, Claire was already pregnant with Georges Louis, who was born in January 1915 in Nitra, the closest sizeable town to Kovarce - most probably they just went to the hospital there for the delivery but did not stay in town very long. Then there are a number of postcards sent in 1915 by Georges from Kovarce to Claire and baby Georges Louis at various addresses in Switzerland - first Biel/Bienne, then at Aarwangen castle from mid-year, then Davos in December. (How the Mutschlers had gained access to Aarwangen Castle, a facility of the Berne cantonal authorities, is unknown.) Georges's last postcard from Kovarce in the archive, sent to Claire at Villa Berma in Davos-Dorf, is dated 9 December 1915; a postcard of Claire from Davos, dated and stamped 23 December, appears to have been returned with a stamp of the Appony Post Office in January 1916. 

Georges and Claire with their dog Krotass in Kovarce, July 1914

From all this, one may hypothesize that after having spent the second half of 1910 in Kovarce, Georges moved back to Davos around early 1911 to marry and to work full-time on the shop business. But - either because it did not work out, or because the Cardezas made him an offer he couldn't refuse - he returned to Kovarce around early 1912 and stayed there until finally leaving Upper Hungary for Switzerland around new year 1916. Claire stayed in Switzerland most of the time, but was with Georges in Kovarce for a bit more than a year, from late 1913/early 1914 to shortly after little Georges's birth in January 1915. 

Why did Georges eventually leave Upper Hungary? Quite possibly because the Cardezas themselves had left, or at least they no longer needed a chef on site. We know that in 1916 Mary was doing humanitarian work on the Russian side of the Eastern front, i.e. against Austria-Hungary, because she was decorated for that by the Red Cross. In any event, the Cardezas were done with Kovarce by April 1917, when the United States entered the war against (among others) Austria-Hungary. They returned to Central Europe in the early 1930s, this time in Austria where they rented the hunting manor of Radmer in the mountains of Styria until the next deterioration of the political climate led them to return to the U.S. in 1933. Mary Cardeza died in 1943, and Thomas in 1952.

During his sojourn in Hungary, Georges must have been witness to the rapidly increasing frictions between the cosmopolitan, aristocratic world of his patrons and the rising dominance of ethnic and linguistic nationalism. The imperial court had always been multilingual. Emperor Franz Joseph continued the tradition, being as proficient in French as in German, and moreover educated in Czech, Hungarian, Italian, Polish, plus Greek and Latin. The Apponyis were similarly fluent in French, as demonstrated by the Countess's letter of 1918, in addition to (at least) German and Hungarian, and didn't mind that their first name would change according to language context, e.g. Louis / Lajos / Ludwig (also Ludovicus). Latin had remained the Kingdom's official language until the 1830s, when it was replaced by Hungarian, and in Georges's time it still competed with Hungarian in religious contexts.

Baptismal certificate of Georges Louis Véron, January 1915. The form is bilingual in Latin and Hungarian, and filled in Latin. 

But at the same time, in the Kingdom of Hungary, the nationalist "Magyarization" project aimed at suppressing minority languages such as Slovak in Kovarce's region, as well as Romanian in the kingdom's eastern lands and Serbian in its south. As it happens, Count Albert Apponyi, a distant cousin of Louis and arguably the family's most senior statesman (leaving aside Louis's granddaughter Queen Geraldine of Albania), gave the Apponyi name to the notorious 1907 legislation that imposed Hungarian as the main language of education - ironic since, as he recalled in his memoirs, his own first achievement in public service was thanks to his command of Italian. 

Postcard addressed by Georges to baby Georges Louis, nicknamed Lajos (Louis in Hungarian), June 1915. Georges makes fun of elaborate Hungarian titulatures: if I get it right, Nagy költö sagos Véron Lajos uruak translates roughly as "the great blessed poet Lajos Véron, Esquire". The Swiss post office forwarded the card from Biel/Bienne to Aarwangen, where Claire had apparently relocated by then. 

One suspects that Georges had to manage some language sensitivities as well, even though he certainly could speak French with his Apponyi and Cardeza patrons. Mary Cardeza herself had a French family background - she apparently was a descendant of Jean Racine, the 17th-century playwright - and the Cardezas had other French servants in addition to Georges: these included a butler, who also went on the Titanic and survived, and a driver. Georges also presumably spoke functional German, at least after spending time in Davos. Slovak was by far the majority language in Oponice and Kovarce (which also had small Hungarian and German minorities), but no one in the elites would speak it in Georges's time. (Strikingly, the Apponyi Library in Oponice, now the pride of the Slovak National Library, had thousands of volumes in French, German and Latin, many in Hungarian and Italian too, but not a single one in Slovak.) One wonders if Georges had to speak it to communicate with his kitchen team in Kovarce. His letters suggest that he may have mastered at least some basic Hungarian, even though he occasionally struggles with the spelling of Hungarian place names. By contrast to the present, fluency in English was not needed or even very useful in those times and places. 

Letter from Georges Véron to his brother Louis, 3 August 1914

In his August 1914 letter to his brother, Georges refers implicitly to the nationalistic fervor of the moment by insisting that he and Claire are safe, even though at that time he did not expect to be allowed to stay in Upper Hungary for much longer: "We will wait to be forced to depart, I mean if the war becomes generalized they will require us to leave the country (...) we will leave if we must, but until then we stay". His assessment is sober and, with hindsight, grimly accurate: "As serious as the situation is, I still have a modicum of hope, and I believe that each day that passes without it worsening is one more chance that the war may remain localized, but unfortunately any spark can trigger the most horrible of wars. We should still wish and hope that the men on whom so many responsibilities rest will still be able to stop such misery, but all these rascals in Vienna and Budapest who have led their country and Europe into such an impasse - oh then a curse on them."  

Georges's brother Louis Véron in military attire, presumably during World War I

After leaving Kovarce, Georges probably spent the rest of the war period together with Claire and their little son in Switzerland, and possibly even stayed there a bit longer. The family archive has many photos of Claire, baby Georges Louis and assorted members of the sprawling Mutschler family, in Aarwangen in 1916, in Basel in 1918, and in Aarwangen again, with several also showing Georges, in 1919. At some point between 1919 and 1922 the family relocated to Strasbourg, not far down the river Rhine from Basel, where they opened a restaurant on 1, rue Stimmer. I imagine that Georges may have longed to live and work again in his native France, and was conceivably further enticed by French government incentives for French people to move to just-recovered Alsace. 

The restaurant in Strasbourg, early 1920s

There is still a restaurant now at the same address, even though it was closed when I visited in December 2018.

1 rue Stimmer, Strasbourg

By that time, the Danubian world that had been Georges's for more than a decade had changed beyond recognition. Oponice and Kovarce were now in Czechoslovakia, where Hungarian aristocrats such as the Apponyis faced a stark choice between staying as a now-embattled minority, or leaving and be dispossessed. Georges's former boss Countess Marguerite Apponyi opted for the former and remained in the Oponice castle until her death in 1931; cousin Albert Apponyi chose the latter and lost his family estate in Éberhárd (now Malinovo) near Bratislava, which in 1923 became the State Agricultural School of Czechoslovakia. As for the Kovarce castle, Marguerite's son Henry sold it to the Czechoslovak government in 1926. When Henry died in 1935, the continuous presence of the Apponyi family in their ancestral lands of what is now Slovakia came to an end, even though members of the family lived on in Hungary or emigrated. 

Georges died in Strasbourg on 9 February 1925, perhaps of another bout of tuberculosis. He was 49 years old. Claire sold the restaurant business and after a few years she returned to Basel, where she stayed until her death in 1956. Young Georges Louis remained in Strasbourg with support from his Paris-based uncle Louis (who died in 1946 and was buried in Le Mans). He went on to study at the faculty of medicine, where in the 1930s he would meet his future wife Paulette, my grandmother. In September 1939 they were expelled from Strasbourg during the Alsace-Moselle Border Zone Evacuation and settled during the war in Thury, where they married just after liberation in September 1944 and where my father was born in May 1947. But that is another story. 

Announcement of Georges's death, February 1925

Is there any legacy of this journey through long-disappeared Mitteleuropa? I am tempted to think that immersion in the Apponyis' milieu had a transformative influence on Georges, who comes across as unusually worldly for a son of presumably illiterate farmers in Western France. His letters of the 1910s are well-written and often witty, he read newspapers regularly and had strongly-formed political opinions, and he also painted as a hobby. Cooking elaborate meals for the Apponyis, the Cardezas and their high-society guests may have facilitated the ascension of my Véron forebears to the middle class, and opened their horizons to the wider world. If so, I am grateful. 

Painting by Georges Véron, undated

Note on sources: other than my family's archived documents, I particularly relied on a 2015 conference volume published by the Slovak National Library on The Apponyi Family in the History of Book Culture, which I found on sale at Hotel Chateau Appony, and on research on Kovarce and the Cardeza family by local historian Peter Gerši. 

CSFI Video on China, the EU and the US

The London-based Centre for the Study of Financial Innovation produced this 45-minutes-long video in which we discuss the relationship between China and both the EU and the US, based on my recent paper co-authored with Madi Sarsenbayev. 

The German Federal Constitutional Court's Ruling on the ECB's Public Sector Purchase Programme

This brief reaction to the German Federal Constitutional Court (GFCC)'s landmark ruling of May 5 was just published on the Atlantic Council's Blog. 

The GFCC’s latest ruling is best viewed as part of a long sequence that started a generation ago in the wake of the Maastricht Treaty. As such, it should not be overdramatized. All players involved are playing a complex game of quest for institutional dominance. To use an American word, this week's ruling stops well short of outright nullification. The GFCC does not directly question the primacy of EU law.

Even so, this step marks an escalation, if only because it’s the first time that the GFCC labels a decision of the Court of Justice of the European Union (CJEU) to be ultra vires, beyond its powers. It also has impact on euro-area monetary policy. To a large extent, the ECB is taking stray bullets from the raw turf warfare between the GFCC and CJEU. The GFCC is not substantially interested in monetary policy, nor does it ostensibly understand it.

In the immediate short term, the pressure is on the Bundesbank, which has three months to decide on which side it stands, possibly subject to other players’ moves in the meantime. If it keeps participating in the Eurosystem’s Public Sector Purchase Program, it risks being blamed and possibly sued for non-compliance with the GFCC’s instructions. But if it exits the program (arguably only then), Germany could be sued by the European Commission for infringement of EU law.

This case raises profound questions about the sustainability of the euro and beyond it, of the European Union itself. But don’t expect these questions to be settled anytime soon. Rather, expect more lawsuits.

Risks for the US Dollar as the World's Reserve Currency

The International Economy asked me, together with a number of other scholars and analysts, about the risks to the current globally dominant status of the US dollar. In my response (text below), I argue that the main present risk comes from overreach by the United States in their application of financial sanctions, a risk that is highly correlated to the outcome of this year's presidential election. 

Read the full series of contributions here, or download it here if the previous risk is broken. My piece is at the very end. 

The dollar is dominant because it is so much safer and more convenient to use than any other alternative. If, however, using the dollar comes with an elevated perception of risk, its use will ultimately become less common. This is what may happen if the Trump administration’s incontinent use of financial sanctions is maintained over the next few years.

The United States has wielded financial sanctions for a long time, and their use has been renewed and expanded following the attacks on September 11, 2001. Even during the 2000s and until the end of the Obama administration, however, there was a keen awareness within the U.S. executive branch of a fundamental trade-off. Sanctions were viewed as a powerful tool that could bring effective benefits to U.S. foreign policy; but if they were used too aggressively, their effectiveness would be blunted by the incentive created for non-U.S. actors to move away from using the dollar for their international transactions. Thus, the best possible use of sanctions was targeted and parsimonious.

That caution has, like so many other things, been thrown out of the window by the Trump administration since 2018. The administration has either imposed sanctions or threatened them on the business interests of Oleg Deripaska in Russia, the companies involved in building the Nord Stream 2 gas pipeline between Russia and Germany, Turkey, Iraq, and more. Its scattershot moves have seeded a perception that U.S. sanctions may possibly hit anyone anywhere in the world, based on essentially unpredictable whims.

Given considerable inertia in such matters, this perception has not yet led to very widespread changes of behavior. If Donald Trump is reelected, however, the unpredictability of sanctions could well become an entrenched belief that is part of a “new normal” set of assumptions. If, by contrast, Trump loses this year’s presidential contest, it is likely that the new administration will review the use of sanctions, and that of trade tariffs too, with the aim to reassure traditional allies that the U.S. government is keen to mend fences.

The dominance of the dollar is fundamentally linked to its assessment by a critical mass of market participants as the least-risky currency to use as reference. If, in the calculus of most players, using the dollar becomes structurally more risky than, say, the euro, then a massive shift in financial behavior could happen within a few years. True, one could hope that a second Trump term might be more moderate in international policy than the first one, as happened with George W. Bush. Nothing in the Trump administration’s track record so far, however, provides comfort that such hope is more than wishful thinking.

EU vs US Perspectives on China's Belt & Road Initiative

This paper, co-author with Madi Sarsenbayev, was uploaded by the Peterson Institute this week following its publication in late March in the China & World Economy Journal. We take stock of China's Belt & Road Initiative and its implications for Europe, including some comparative perspective with the United States, and make a few recommendations on how best to manage future developments. 

The article was first prepared for the eighth CF40-PIIE Economists Symposium held in Beijing in May 2019, and the updated version was finalized before the Covid-19 outbreak became a pandemic. Its focus takes renewed significance as the current crisis is bound to accelerate ongoing changes in the system of international relations. 

Download the paper by clicking here in case the above link is broken. 

COVID-19 Economic Crisis: Europe Needs More than One Instrument

With 16 other economists I co-signed this column in Vox published on Sunday, April 5, in which we suggest multiple instruments for the EU to deal with the economic cost of fighting the Coronavirus pandemic. 

A Special-Purpose EU Plan to Help in the Pandemic Crisis

Starting last Friday, I have jotted down ideas for an EU response to the challenge of pandemic disaster relief that would rely on simple financial engineering. Unlike most entries in this blog, this is not a formal publication but an evolving PowerPoint deck that has served as basis for discussions with various interlocutors, including my colleagues at Bruegel and the Peterson Institute. The link points to the version as of yesterday, March 31. 

Brexit and Finance: Brace for No Impact

This text was published last week by Milan-based think tank ISPI on the occasion of its Forum on Multilateralism. 

Updates: the same text was just republished by Bruegel (October 14) and by PIIE (Oct. 15). 

Amid the daily high drama of Brexit, it is easy to lose track of the structural shifts, or lack thereof, that may be associated with the UK’s possible departure from the European Union. One of them, and not the least, is the potential impact on the European and global financial system. London is currently the undisputed financial hub of Europe of the broader region encompassing the Middle East and Africa; together with New York, it is one of the two still-leading financial centers worldwide, despite the ongoing rise of Asia and especially China. How does an event as momentous as Brexit interfere with this critical regional and global role of the United Kingdom?

The answer so far is: not much, and looking forward, probably not much more. Massive as the political shock of Brexit is, the European and global financial systems are intriguingly resilient to it.

To understand why, it is necessary to go beyond the in/out dichotomy that dominates the Brexit debate, and to understand at a more granular level what changes or doesn’t at different points of the different scenarios. Seen through the lens of the financial sector, the complex arborescence of possible UK futures boils down to two relatively simple observations.

First, the really decisive choice for the UK, from a financial-sector standpoint, is not whether or not to leave the European Union, but whether or not to leave its Internal (or single) market. The single market is closely associated with the EU construct and is defined by compliance by EU law, but its boundaries are broader than the Union’s. For example, Norway is in the single market without being an EU member state, and the same would be true of the UK during the transition period defined by the Withdrawal Agreement endorsed almost a year ago by Theresa May’s government. While being or not in the Union makes a major difference for UK officials who will no longer sit at the EU policymaking table if the UK leaves, it makes little differences to financial firms as long as single market membership is preserved, with the regulatory “passports” that come with it. So far, beyond responding to specific requests from supervisory authorities, most financial firms have appear to act on the baseline assumption that the UK is staying in the single market over their business planning horizon, and have correspondingly not made major changes to their operations even as they have sought new licenses to operate in the European Union outside of the UK.

Second, leaving the European single market would be severely detrimental to the UK as a regional and global financial hub. The loss of passporting rights would mean, to summarize a complex arrays of different situations, that the UK will no longer be the best place in its time zone to conduct financial business. In the benchmarking with the best competing locations within the post-Brexit European Union, the comparative advantages of the UK, significant as they are in matters such as language, culture, and the legal environment, would not be enough to offset the disadvantage of not being in the single market. As a consequence, new investment would be overwhelmingly directed elsewhere than to the UK, and there would most likely also be some direct transfers of activity from London to other European locations – in contrast to what has happened so far.

As a consequence, it appears highly likely that the UK will remain in the single market, even if it ends up leaving the European Union. The 2016 referendum was about leaving the EU, not the single market. Leaving the single market is too much pain for too little gain. And if the UK stays in the single market, its financial sector can and probably will keep its leading position regionally and globally.

If however, by an improbable twist of political dynamics, the UK does leave the European single market – a “hard Brexit” as the expression tends to be used – then the consequences may be dire for the UK, but will not be disruptive from a European let alone global perspective. Summarizing again a lot, this is because the core of the City of London is a set of firms that are not structurally dependent on the UK: most are international arms of firms headquartered in the United States, or in Asia, or indeed in Continental Europe. For these firms, if London loses its edge, relocating elsewhere will be annoying and costly but by no means impossible. And one can be confident that European and other authorities will do what is needed to facilitate an orderly transition, because they have no interest in financial instability.

There are a number of challenges in today’s world which could turn out to be transformative for the global financial system. Brexit is not one of them.

Banking, FinTech, Big Tech: Emerging challenges for financial policymakers

This text was published yesterday on Vox following the prior publication this week of the Geneva Report 22. 

Update (October 7): the same text was reposted in late September by Bruegel and the Peterson Institute. 

FinTech (financial technology) firms, generally start-ups that offer a specifically targeted financial service, and Big Techs, globally active technology firms with a relative advantage in digital technology that may add financial services to their range of offerings, are both increasingly – though differentially – stepping on banks’ traditional turf. Currently, financial services are only a small part of Big Tech’s global business. However, given their size and customer reach, Big Techs’ entry into finance has the potential to spark rapid change in the industry. They may even become dominant through their collection of valuable data and their large, established networks (BIS 2019). This has potential wide-spread implications, such as for monetary policy transmission and financial stability (Cœuré 2019), and even the political economy of central banking as we know it (Tucker 2017). The 22nd Geneva Report on the World Economy focuses on the challenges generated by new technology-enabled entrants to the global banking industry and the public authorities that oversee it (Petralia et al. 2019).

Banks have been challenged on their established turf before. In the 19th and 20th centuries, various types of cooperative banks and credit unions grew outside of the traditional banking industry, before being mostly absorbed into the mainstream banking policy framework. More recently, mutual funds have competed with the bank’s deposit-taking function as a safe place to park money. 

The disruption of banking services by FinTech and Big Tech offerings is still at too early a stage to know whether it is just as transformational as such past episodes have been, or something more radical. The speed at which they develop new services in line with customer preferences, their ability for hypergrowth and hopping across jurisdictional borders, and in the case of Big Tech, their potential for leveraging massive established networks of users are awe-inspiring. 

Even so, some features of banking are remarkably stable. Banking assets remain overwhelmingly concentrated in only a handful of jurisdictions. Traditional banking activities still account for more than two-thirds of total revenues of financial institutions, although some of these activities are now performed by non-banks and profits margins are squeezed by the low rate environment. Banks remain dominant in lending and deposit-taking, even as payments is an increasingly contested space. 

While technology and market forces are central to the ongoing disruption, however, they will not be the only or even the main driver of outcomes. Banking is ultimately about money, and money is about public authority – this is why, for centuries, banks have been licensed when they weren’t direct creations of the state. Governments and central banks may be challenged by tech-enabled new entrants, but will not be sidelined by them. The globally coordinated reaction of financial authorities to the Facebook-sponsored Libra initiative demonstrates the point. 

But to respond adequately to the FinTech/Big Tech challenge, authorities will also need to raise their game and enter uncharted territories. We identify three main dimensions to the effort, which are relevant to all jurisdictions even as they take highly diverse forms in different places. 

• Financial stability, which refers to the policies that protect the soundness of the financial system and, by implication, of the monetary system itself, is critical to any sustainable retail banking innovation. It is still unclear how new technologies may generate (or indeed mitigate) financial crisis scenarios, but the massive speed and scale associated with them will open new areas for vigilance if not outright regulation. 
• Competitionis the aim to promote market success, development and efficiency in markets. Recent EU enforcement actions and ongoing debates in the US illustrate how Big Tech will increasingly force fundamental changes in the framework for competition policy, not to mention cross-border security concerns. Competition policy has often been only selectively applied to the banking sector, but the interaction with tech firms is likely to prompt a rethink. 
• Data rights. Banks have traditionally branded themselves as paragons of discretion about their clients’ operations, but the very notions of data privacy, data ownership, and data value are evolving at a rapid pace. While recent events have brought data privacy and protection to the forefront of policy discussion, the world is still far from global agreement on the most appropriate market or societal mix of data rights and access with respect to financial services policy. The EU General Data Protection Regulation (GDPR) is only a harbinger of public debates and legislation to come on how to protect individuals and legal entities from new risks inherent to the data economy. 

For public authorities such as central banks and supervisors, the associated challenges we identify are at least three-fold. 

• First, they must keep pace with technological change – understand it, embrace it in their own organisations, and correspondingly adapt their skillsets and mindsets. Authorities may be faced with the difficult balance between a culture of prudence and attention to detail, which is often essential to delivering on their mandate, and the ability to adapt their frameworks rapidly to a fast-moving environment.
• Second, they will increasingly have to work collaboratively with their peers across the globe as well as with non-financial peers in areas such as competition and data rights, in order to adequately respond to increased salience of Big Tech in the financial system. Alongside their peers, financial authorities will have to define new modes of cross-border coordination and, in some cases, possibly pooling of their mandates when these cannot be effectively fulfilled at the level of each individual jurisdiction. Perhaps more challenging, financial authorities will have to find ways to work with authorities with whom they may have had little or no interaction, or with entities which simply did not exist previously.  The experience of the last two decades in the EU, where financial authorities have had to gradually accept and internalise the growing role of the European Commission’s state aid control, may give a taste of more frictions and adjustments to come. 
• Third, they may increasingly need to consider institutional experimentation to remain able to oversee firms that evolve fast and hop jurisdictional borders. These could include forms of direct supervision that encompass several (if not necessarily all) jurisdictions at once, based on binding legal arrangements beyond the ‘soft law’ or voluntary cooperation that prevails in existing international financial bodies. Here too, the recent EU experience, where supranational supervision has become a reality even though it had long been considered utopian, may provide useful pointers for future initiatives. 

All the same, banking sector policy, like digital services, will certainly stop short of complete global uniformity. The terms of debates on financial stability, competition, and data rights, will not converge in the foreseeable future across jurisdictions such as China, Japan, the EU and the US. International initiatives should aim at finding the right balance, preventing unnecessary fragmentation while adapting their tools to the diversity of collective preferences and political systems. 

References

• Bank for International Settlements (2019), Annual Economic Report, June.
• Coeuré, B (2019), "Update from the Chair of the G7 working group on stablecoins", 18 July.
• Petralia, K, T Philippon, T Rice and N Véron (2019),Banking Disrupted? Financial Intermediation in an Era of Transformational Technology, Geneva Reports on the World Economy 22, ICMB and CEPR. 
• Tucker, P (2017), "The political economy of central banking in the digital age", SUERF Policy Note 13, June.

 

Supranational Financial Supervision: A Pipe Dream, or an Idea whose Time has Come?

I contributed a chapter to an e-book just published by the Florence School of Banking and Finance and edited by Franklin Allen, Elena Carletti, Mitu Gulati and Jeromin Zettelmeyer. I raise the question whether concerns about financial fragmentation may force a debate about new forms of supranational supervisions of certain globally critical financial firms - probably not banks, but possibly infrastructures and information intermediaries.

Such supranational financial supervision has been operational in the EU, including the UK, for a number of years with ESMA's supervision of credit rating agencies and trade repositories, even as such supranational supervision was widely viewed as Utopian as recently as the mid-2000s. I recommend institutional experimentation at the global level and/or in other regional contexts, in anticipation of the possibility that a future crisis may generate starker trade-offs between cross-border financial integration and national supervisory autonomy. 

EU Trade Policy amid the China-US Clash

The Greens/EFA Group of the European Parliament commissioned this paper which I coauthored with Anabel Gonzalez, and published it earlier this month on the same day as Anabel gave testimony about it in Brussels. In it, we take a holistic view of the changing trade policy landscape and especially the escalating frictions between China and the United States. We recommend that the EU should lead from strength, along several dimensions that include outreach in China and in the US, finalization of the China-EU Investment Agreement, the multilateral framework and WTO, the EU-Japan-US trilateral discussions, bilateral EU-US trade arrangements, and relationships with other jurisdictions around the world. 

Update (August 1, 2019): the same text was republished as a Working Paper by the Peterson Institute. 

Update (September 17, 2019): the same was republished as a Working Paper by Bruegel.  

Download the paper here in case the above link is broken. Click here for the PIIE version, and here for the Bruegel version. 

An Effective Regime for Non-viable Banks: US Experience and Considerations for EU Reform

The European Parliament today published this study, in which Anna Gelpern and I take a holistic look at the EU regime for non-viable banks - including the EU resolution framework, national insolvency proceedings, and deposit insurance, to which we add state aid control and what we call mutual support arrangements. We take the US regime, centered on the FDIC, as the starting point of our analysis (as requested ECON Committee staff), and consider avenues for EU reform in light of this benchmark. 

Download the study here in case the above link is broken. 

Taking Stock of the EU Single Resolution Board

My study on the Single Resolution Board (SRB) was just published by the European Parliament, in advance of a hearing of SRB Chair Ms Elke König next week. The SRB is an important pillar of Europe's fledgling banking union, and mine is one of the very first assessments of its performance as a recently established authority (following a report by the European Court of Auditors published in December 2017). 

Click here to download the study in case the above link is broken.