Draghi Musters ECB Gathering in Shadows of a Latvian Scandal

European Central Bank policy makers will get their first chance on Wednesday to hear directly on the outsized crisis emanating from one of their smallest member states.

Latvia — 0.2 percent of the euro-area economy and 0.6 percent of the bloc’s population — is the week’s hot topic as ECB President Mario Draghi chairs one of the Governing Council’s regular meetings in Frankfurt. The detention on bribery allegations of the nation’s central-bank governor, Ilmars Rimsevics, isn’t on the formal agenda, according to a euro-area official who asked not to be identified. But it’s guaranteed to be a talking point, at least over dinner.

If that’s not enough on Latvia, policy makers will also have a chance to inquire about the repercussions for the country’s financial system after a moratorium on payments was imposed at the ECB’s request on ABLV Bank, a Latvian lender accused by U.S. authorities of links to North Korea.

Read the latest on Latvia’s crisis

Rimsevics has no plans “for now” to attend, a Latvian central-bank spokesman said on Wednesday. Deputy Governor Zoja Razmusa is in Frankfurt in his place, though she is ineligible to vote on decisions unless she’s appointed as his long-term substitute. Deputies also don’t typically attend the dinner. The government has pushed for Rimsevics to step down.

Draghi and his colleagues have so far refrained from commenting publicly as they try to gather more details about the graft accusations. Their dilemma is that any warning to Latvia to respect central-bank independence — as the ECB did after previous incidents in Slovenia and Cyprus — could backfire if it’s seen as undermining the legal process.

The Allegations
Latvia’s Corruption Prevention and Combating Bureau, which detained Rimsevics, said it had begun criminal proceedings against a “a top-level public official” of the country’s central bank. It’s investigating “an alleged solicitation and acceptance of a bribe” of at least 100,000 euros ($123,000).

Separately, Latvian police are looking into allegations brought by Norvik Banka JSC in a 39-page complaint to a World Bank arbitration body. While the document, filed in December, only refers to a “very high-level, senior Latvian public official,” Norvik chief Oliver Bramwell confirmed that person is Rimsevics.

Prime Minister Maris Kucinskis has said the two cases are not related. Rimsevics denies all the allegations.

An ECB spokesman declined to comment on the Governing Council’s agenda, and on whether it intends to issue a statement after the meeting.

The Latvian central bank said on Tuesday that it is in consultation with the ECB on how the situation should be treated from the point of view of the legal statutes. Under European Union law, governments can’t remove central-bank heads unless they’re guilty of serious misconduct or unable to perform their duties.

Athens Furor

Rimsevics is not the only governor facing trouble at home. His colleague Yannis Stournaras, who leads the Bank of Greece, will also miss the Frankfurt meeting amid a political furor in Athens. The governor spoke to Parliament on Wednesday before a vote on whether he and nine other current or former politicians should be the subject of an investigative commission on a bribery case on drug overpricing involving Novartis AG. All have denied wrongdoing.

Should Rimsevics’s case drag on, more complications are on the horizon for the ECB. Wednesday’s meeting isn’t on monetary policy, but the Governing Council will take decisions in the coming months at which it has to determine when and how it unwinds its extraordinary stimulus measures as the economy expands. Rimsevics technically has a vote on those actions. The next such meeting is on March 8.

Moreover, once a year the Governing Council holds a meeting outside Frankfurt. This year’s event is scheduled for June — in Riga, the Latvian capital.
Source: Bloomberg