Leadership central europe - part VII

Reflecting further on the 5 posts, my concerns about the effectiveness of training programmes in transition countries can perhaps best be summarised in 4 words – "wrong focus" and "wrong theory"! And the way ahead can be summarised in two words – "context" and "leadership".

Wrong Focus
• The EC has funded (in Technical Assistance) and continues to fund (under Structural Funds) too many training projects in transition countries with insufficient focus on building a training capacity. Indeed it undermines national training institutes by the resources its projects gives to private trainers and companies under its procurement rules.
• these programmes have, in addition, concentrated on the supply side (training individual trainers; drafting course material; and funding course) to the almost total exclusion of the demand side (helping organisational managers define their real needs and building stronger inderstanding of and pressure for quality training)
• they focus on lower rather than higher levels of organisations. (It’s the easy option – senior management will rarely admit its deficiencies and need to learn).
• And the programmes assume knowledge rather than skill needs. (It’s easier to provide – through traditional rote learning).

Wrong theory
Most of the training programmes I’ve seen implicitly assume that the performance of state bodies (insofar as it measured in transition countries) can be improved by better knowledge of junior staff. This may be true of the sort of training project I’m currently involved with – aimed at those municipal staff who handle bids for EC funds and manage such projects – but is not true of the general management course which National Training Institutes run. And the mission of such Institutes is surely to help improve the performance of state bodies.
Poor organisational performance is generally due to a mix of poor management systems, lack of strategic leadership and political interference. And Improving them is more a matter of skills and attitude than knowledge!

I am not alone in questioning the effectiveness of the programmes to train public officials.. I was very encouraged a few months back by the publication of a paper - Training and Beyond; seeking better practices for capacity development by Jenny Pearson - which, in a much more referenced (but sometimes turgid) way, expresses the same concerns and indicates the number of people who now seem to share them in what, in the last decade has become the up-and-coming field of capacity development.

Context, context, context
All interventions should therefore start from proper contextual analysis of existing administrative capacity – and constraints. The focus then should be on organisational change – not training - to ensure that proper consideration is given to the full range of possible interventions, of which training is only a small part (see pages 33-37 of the Pearson paper for a good overview). Of course this is not easy – but, if this is not the starting point, then people will fail to pose the correct questions; to learn the required skills; and therefore to waste a lot of money.
Official documents have begun to recognise this in recent years. The EC’s Backbone Strategy admits that its projects need to be better grounded in the context; in its "drivers of change" work, the UK's ODI has pioneered ways of identifying power constraints; and the World Bank’s recent Governance Reforms under real world conditions is written around the sorts of questions which have given my work as a consultant its real edge-

1. How do we build broad coalitions of influentials in favour of change? What do we do about powerful vested interests?
2. How do we help reformers transform indifferent, or even hostile, public opinion into support for reform objectives?
3. How do we instigate citizen demand for good governance and accountability to sustain governance reform?

The paper I wrote earlier in the year for the Varna Conference (Time for the long game - not the logframe) drew attention to the crumbling of key building blocks of administrative reform in many of the EC’s new member states in the last few years. Francis Cardona’s Can Civil Service Reforms Last? The European Union’s 5th Enlargement and Future Policy Orientation – published in early 2010 - is just the latest evidence. It shows how appointments are becoming politicised again. In 2007 Tony Verheijen had published a paper for the World Bank entitled Administrative capacity in the new member states – the limits of innovation which painted a fairly bleak picture. So in 2009, did Meyer-Sahling’s paper for SIGMA - Sustainability of civil service reforms in central and eastern Europe five years after accession. Sorin Ionitsa and Tom Gallagher have painted a vivid picture of the fate of administrative reform in one of these countries – Romania – and offered different levels of explanation for it.

If that is the context, how does one get around it? Clearly politicians in these countries need to grow up and stop behaving like petulant and thieving magpies. But how does that happen?
Manning and Ionitsa emphasise the need for transparency and external pressures (civil society) to try to get politicians to act more seriously.
Verheijen and Cardona talk more idealistically of the need to establish structures which bringing politicians, officials, academics etc together to develop a consensus. It happened, certainly, in the Baltic states – but there are always dangers in holding up one country as an example. When things go wrong, as they generally do, the corrupt and incompetent use this to damn reform. And one of the difficulties so many transition countries have is the inability of its elites to work cooperatively.

I have to wonder whether there is not a place now for the sort of initiative which impressed me when I visited Pittsburgh more than 20 years ago. As an old industrial city, it was experiencing social and economic dislocation – and someone started a quiet movement which brought the potential leaders of tomorrow in its various sectors (commerce, political, administrative, trade union, religious etc) into a regular academic setting to confront the city’s problems. Leadership Pittsburgh has been replicated across other cities and has had 2 profound effects – it forged crucial personal links of respect and understanding; and it made most of those who attended think about their wider responsibilities and the needs of the city.

Going back to the Director of the Training Institute - my advice to him would therefore be - Think Big! Reach out! Have passion!

Benefits of nomadism

Glorious autumn weather here in Sofia – although the ground floor garden flat is getting ever more icy cold every night and morning. Time to move somewhere warmer!
I started the morning with a long article which touches on one of the most fundamental issues for us all (apart from food and accommodation) – companionship. It’s about the trend (which I’ve noticed here in Europe) for women to choose to remain single. Men are simply not worth the bother! The article in The Atlantic journal starts perhaps in a rather self-centred way but soon proved to a worthy read about contemporary values – backed up with perspectives from forays to other lands, cultures and times. I recommend it.

A trip to the nearest Knigomania bookshop a few minutes round the corner in Vassil Levski St gave a good haul –
• Modernism – the lure of heresy by Peter Gay (2007) – a wonderful-looking 600 page treatment of all art forms of this genre by an historian who escaped with his family from Berlin in 1933 when he was a young boy; one review is here and a more critical and historical one here
• the classic Zen and Art of Motor Cycle Maintenance – an inquiry into values (1977) – which I have from internet but whose electronic format does not invite me in. I need to touch!
• a novel by the highly rated John Cheever from 1957 - The Wapshot Chronicle
• Langenscheidt’s Grosswoerterbuch Deutsch als Fremdensprache – to help me with my reading of the Spiegel magazine which I have taken to buying here. Langenscheidt I remember with some veneration from my father’s study (when he had the voluminous but silky weekly edition of Die Zeit paper dispatched from Germany in the late 1950s and 1960s during his post-war pastoral "reconciliation" twinning with a church in Heligenkirchen near Detmold). With its 1312 German pages at 16 euros, it offered 10 times the value of almost similarly-priced and much smaller dictionaries (half of whose contents are taken with English-German for which I have no use)

This is the great thing about the bookshops here. You are not press-ganged by marketing into buying latest releases. You never know what gem from the past you will find – even if the editions are fairly recent.
Talking of Der Spiegel, it had an incredible story yesterday about the Germans finding a 55 billion mistake in their national accounts because one bank added up wrongly – giving the system now a windfall to that extent!!
When I started this nomadic life of mine all of 21 years ago, I noticed one immediate advantage. I was no longer exposed to British newspapers and the relentless noise of television reporting. This not only released time for other pursuits; it also created greater serenity. I could hear myself thinking – and was more able to choose my own agenda. Television has not been allowed into my Carpathian house – and I have no temptation to open the television set here since it offers only Bulgarian programmes. Of course, I am hit with news headlines when I go onto the yahoo site for my mail – and I do then always check the Guardian website after that – but rarely find myself spending longer than 10 minutes on its articles. The BBC has become my great consolation – particularly the Through the Night programme – which are constantly introducing me to new pleasures eg in the past week Telemann’s Suite for strings and continuo (TWV.55:Es3) in E flat major; Taneyev, Sergey Ivanovich (1856-1915) Symphony No.4 in C minor (Op.12); and Respighi, Ottorino (1879-1936) Rossiniana. I even find myself listening to opera – eg the haunting tones at the moment of the final section of Mahler’s 3rd Symphony which can be heard for the next 5 days.
The BBC’s economic bloggers are always worthwhile – particularly Paul Mason and Stephanie Flanders and I was impressed with the radio series she has started recently which figures key figures (such as George Soros).

I mentioned JK Galbraith recently. His son, James Galbraith, is also a renowned economist who has been highly critical of mainstream economics and has a useful piece on those economists who were warning years ago of the bursting of the bubble and how they were marginalised within the profession. For me this is not a left-right issue – it is about hubris and the need constantly to challenge (in the phrase coined by Galbraith Senior) the “conventional wisdom” .
Finally a good article about the "We are the 99%" protestors

Update - the British School of Government axed! (part VI)

The UK’s National School of Government – which I indicated (in my recent table about such national Institutes) had been reprieved from closure last year – will now be closed next March. According to a Ministerial statement in Parliament in June, it delivered 809 events to a domestic audience for the 12 month period from 1 June 2010 to 31 May 2011. These events were attended by 33,254 UK government officials. But last week its closure was announced (again) with a bland statement that "The new "Civil Service Learning" will focus on work-based approaches, including e-learning, and will directly involve managers in the training process" says the official statement. Previously called the Civil Service College, the facility runs training, development and consultancy courses for Whitehall mandarins. It employs 232 staff and is based at Sunningdale Park in Berkshire, with an annual budget of £31 million.
Quoted on the school's website earlier in the year, the Head of the Civil Service said: "It is clear that the public sector will be confronted with some serious challenges in the future. The National School of Government is a vital tool to help us meet them. The learning and development it provides must be part of our solution." But the Minister (Mr Maude) has claimed a shake-up of training will "improve the quality and impact of training". In his recent Parliamentary statement, he added: "It will also create greater flexibility by sourcing much of the training from external providers, including small and medium-sized enterprises."

I would have to say that the School was always vulnerable to such treatment. For example, it never produced anything that was available publicly. My source of inspiration when I was a young reforming politician in local government was the Institute of Local Government Studies (INLOGOV) at Birmingam University which was built entirely around the passion of one man John Stewart; which produced a bi-monthly journal; Discussion papers; and books. And to whose seminars one could easily access as a local government person. The revenue came from its local government pmarket - which is politically diverse.
Warwick University has also been home to another such Institute - the Local Government Centre built around one man John Bennington.
The School of Government was more elitist - and political. And therefore vulnerable. So one lesson is not to be too dependent on one market. The recent trend for amalgamating training of local and central government has a lot to be said for it - not least that people from these 2 sectors get to rub shoulders with one another.
There are lessons there - that a sustainable centre needs independence!

The future of public service training - Part V

Imagine yourself the Director of one of the Institutes I have been talking about…. There were periods last year when you didn’t have the cash to pay your staff. You’re not sure how long you’ll have in your position since both it and that of the Institute can be (and has been) affected by political vicissitudes. The only source of money is the European Union – but the bureaucracy is onerous and time-consuming; and the benefits not as obvious as might seem at first sight. None of the cash actually reaches the Institute – most of it goes to private companies and their contracted experts. What do you do in such a situation to try to ensure that the Institute’s activities actually help improve public services and are sustainable?
Most EC consultants would advise the Director to develop a strategic plan. That is to set up a process of identifying and consulting “stakeholders” to develop over several months a new “vision” and “action plan” which would carry with it a new “commitment” from those stakeholders to “make it happen”. I don’t mean to be cynical by the insertion of inverted commas – but I do have some questions about the belief that several months of such an exercise will magically produce an answer that no-one previously thought of or produce a new spirit of cooperation. The first thing I would actually recommend is some strong brainstorming for the Director with some experienced and trustworthy people – to try to identify some realistic options whose feasibility (s)he could then explore in a variety of ways – including a strategic exercise.
And if I were one of those with whom (s)he brainstormed, I would want to explore a central question -

What is the point of having a budget-supported national training centre for public officials?

Running courses is a means - not an end. The end is surely the improvement of state bodies. But this is not achieved by a series of ad-hoc workshops run by trainers who do not communicate with one another and who have no subsequent link with the participants. Of course, despite the claims of management consultants and management gurus, noone really understands the process of improving the performance of state bodies. To some it’s a question of leadership; to others teamwork; to others again, It’s competitive and/or citizen pressures; and to many politicians it’s a matter of targets, transparency and a mix of sticks and stones.

Several things, however, are clear for me –
• each country has its own cultures and needs to find its own way in its own language
• this requires a few experienced people to blaze a trail, providing ways of thinking about issues, presenting and interpreting relevant experience
• sometimes this can be an academic – but they generally have other agendas and an inaccessible language
• A training centre is ideally placed to bring senior managers together to share their experiences, encourage one another and formulate an agenda for strategic change
• A few suitable academics could be encouraged to participate in such sessions (good for their research) and co-produce Discussion papers

Of course this doesn’t immediately bring cash – and does demand time. But it’s time well spent – in building a reputation. It’s not easy to talk about cooperation between education and training institutes (not least because the terminological distinction is not as often made in central Europe as in the UK). The academics worry about a lowering of standards – and the trainers worry about opaque verbosity. But particularly in the field of public management, the distinction is a crazy one. I am not a fan of undergraduate courses in public management – they are shallow pot-pourris; they demonstrate little of value to subsequent employees (save perhaps that those who opted for the course have little ambition); and few who graduate actually go into public service. I think those who find themselves in academic positions teaching and (hopefully) researching public management would be better located in national training institutes – particularly if those institutes had a focus on senior management. I warned in part II that some academic cows would need to be sacrificed!

Can training make a difference? Part IV

Having suggested that few new Member States in central and eastern Europe seem to have managed yet to establish a proper training system for its public officials – and that the European Commission’s type of Technical Assistance has to take part of the blame for this – the following questions seem to be in order –
• Are there any examples of a relevant and sustainable training system in the new member states?
• If so, how did they manage to achieve this position?
• What is the status of such training systems in the older member states?
• Through what process have they gone to achieve their various present positions?
• What lessons would all this suggest for those countries which are still stuck at the drip-feed stage of development?

These are actually very difficult questions to answer – since so little is available - and I have spent the morning wrestling with them. In 1997 SIGMA published a couple of relevant papers – one setting out the various choices and issues involved in setting up a modern training structure; the second giving vignettes of each of the training centres for civil servants in OECD countries. Since then, nothing.
With all the support given over the decades by the European Commission to networks of practitioners, you would have thought that someone by now (eg Christopher Demmke of EIPA) would have recognised the value of a paper on the subject. And NISPAcee is, after all, the Network of Institutes and Schools of Public Administration in central and Eastern Europe but has not undertaken such a comparative (and sensitive) analysis – although its journal does contain the odd profile. There is also the rather elusive Directors of Institutes and Schools of Public Administration (DISPA) whose latest gathering this month in Warsaw was captured on the site of the Hungarian Institute but which, equally, has never risen to the challenge of commissioning a comparative analysis. So I have to venture into this field with all my imperfect knowledge.
The situation of the central PA training institutions in the EU Member States in terms of their role, tasks, funding and other characteristics varies from one country to another. And there have been considerable changes in the legal structure of central bodies for civil service training -
• A Civil Service College in Britain (for senior civil servants) was first part of the Cabinet Office; then became the Centre for Management and Policy Studies; then the National School of Government which was a free-standing Department; was then slated for abolition in March 2011 but was instead transferred back to the Cabinet office.
• The Dutch, Finnish and Swedish Institutes have all been privatized over the past decade.
• Romania’s Institute for National Administration was moved to the Civil Service Agency a couple of years ago after a period of some tension with that body.
• The Bulgarian IPA now finds itself back with the Council of Ministers – having over the past 5 years been part of the (now abolished Ministry for Administrative Reform) and then of the Ministry of Education.
• The Hungarian structure has been subject to major changes recently - with first a university unit being merged with a national training centre and now the integration of national and local government training systems
• The Czech structure was also changed the last year. There were two institutes before: one under the Office of the Government of the Czech Republic, Department of the Institute of the State Administration and an independent Institute for Local Administration in Prague. They merged the last year and now there is only one institute under the Ministry of the Interior – Institute for Public Administration Prague.
• The Estonian IPA seems to have been absorbed into the Prime Minister’s Office

Given that most managerial theorists are a bit cynical about organizational changes, it is perhaps ironic that the training centres which are supposed to be helping state bodies become more effective have themselves been subject to so much structural change.
My recent personal experience of central european training systems is limited to 3-4 countries – otherwise I rely on anecdotal impressions from colleagues. I therefore hesitate to identify success stories. I hear good things about the Lithuanian and Slovenian systems but can say nothing about their trajectories – or the lessons they might have for others. In the next post, I will try, however, to present a "provocation" for those countries stuck at the drip-feed stage of development.
In the meantime I really would welcome comment from those readers who have experience and views in this field. I know you're there! I'm pleased to say that my readership has doubled in the past few weeks - but the blog does need (and appreciates) feedback

Evidence, dear boy? Training - Part III

I have made a lot of assertions in my two recent posts on EC-funded training – based solely on my (limited) experience in 10 countries over the past 2 decades . Before posting the final part of my commentary on EC training programmes for public officials in ex-communist countries, I wanted to check what was available on the internet about the recent experience with, and evaluation of, the EC-funded programmes for developing the effectivness (capacity) of state bodies which Structural Funds have been encouraging in these countries for the past few years. The EC, after all, treasures transparency and it is currently spending hundreds of millions (under its Structural Funds) in projects to develop the capacity of state bodies and their human resource management. In Bulgaria alone, 180 million euros was set aside for the 6 year period for the Admin Capacity theme (significantly this theme doesn't interest the Romanians who have set aside only 1% of their Structural Fund allocation for it). But there are few documents online which give any sense of what is happening. Those few demonstrate the scale of the mountain we have to scale to ensure effective spend of EC Funds. In most cases, of course, the documents are written in a foreign language (English) – for bureaucratic or academic approval – three factors which tend to knock any sense from the text! Key bureaucratic phrases such as cohesion, transparency and inclusion litter the sentences in meaningless ways. There is no experience or critical analysis behind the words – just obedient regurgitation of the required phrases. This academic paper from a Bulgarian in 2007 tries to extract the lessons of pre-accession instruments for future accession states is written clearly but simply presents global figures, organisational carts and some gossip. A 2009 German (GTZ) consultancy report on one of the instruments is more typical of the obtuse reporting style
A document prepared for a small network trying to share their experiences of using EC money for the development of admin capacity gives a useful insight into their world and issues. Finally a more critical 2011 paper from a young Bulgarian academic

Everyone – on all sides(beneficiaries, donors, consultants, academics, evaluators) – plays the same game – everything has to be fitted to the Procustean bed of EC funding. The European Policy Research Centre at the University of Strathclyde, for example, has received hundreds of millions of euros from the EC to explain, evaluate and proselytise the EC’s regional policies since they were a gleam in Bruce Millan’s eye from 1988 when, as EC Commissioner for Regional Policy, he started (under the Delors regime) the incredible expansion of the programmes whose munificence created the real attraction of EC membership for ex-communist elites. Of course it is the last organisation which would dare to blow the whistle on the dubious nature of the ventures. Take, for example, this Greek academic paper it published recently.

One longs for a young boy to shout out that the Emperor has no clothes – and dare to tell it as it is.

making training effective - Part II

Part I suggested that the billions spent by the EC on training public officials over the past decade or so in ex-communist countries have not created sustainable training systems there - ie centres for training public officials whose full-time staff contain both trainers and specialists in the field of public management – and who actually play a role in helping state bodies operate effectively. Most of the new member and Accession states have a central training Institute – but its staff are small and (in all but a few cases) administrators who bring in public officials and academics for a few hours to deliver lectures. Little "needs assessment" can be carried out (an annual schedule is negotiated between the Institute and the Council of Ministers); Ministries have a training budget and pay for the attendance of those officials it allows to attend selected courses (whether at the Institute or other centres). It is virtually impossible for such a system to carry out serious evaluation of course content and of trainers – its staff lack the specialist knowledge (and status) to question, challenge and encourage. Such a system also focuses on individual needs – and is unable to input to discussions about the development of state capacity or help state bodies tackle their organisational problems.
In the older member States, such Institutes have played an important role in setting a vision for the improvement of public services; in monitoring developments and assisting the exchange of experience. At the time, however, such bodies were being established in the ex-communist countries, the new fashion amongst western consultants was for slimline, competitive training; the academic community in the east simply had no relevant experience to offer; and governments were offloading rather than building functions. The result was underfunded training centres.
With budget cuts of the past few years, the EC Structural Funds are being increasingly used to substitute for mainline funding. Given the competitive basis of the procurement, what this means is that private companies (rather than the Institute) are being paid to act as the administrators – undermining the possibility of the national Institute developing its capacity. One other result is an endless repetition of training the trainers programmes and Manual drafting. Whatever happened to the previous trained trainers and drafted manuals?
Of course, the picture is slightly more nuanced. Some countries have Institutes on the French model – which combine undergraduate teaching with short courses and have therefore a core of academic staff. Poland is the prime example (that academic bias can, of course, bring its own problems!) And Ministries of Finance and Justice tend to have their own training centres, staffed by experts in the relevant field. But the general picture stands.

Is there a different model – in these times of crisis? Only on three conditions -
1. if the development of state capacity is taken seriously – by officials, politicians and academics
2. if there is greater clarity about the role of training in individual learning and organisational development
3. if some academic sacred cows are sacrificed

I assume all new member states have the sort of EC-funded Operational Programmes which Bulgaria and Romania have – with themes such as Administrative Capacity and Human resource management (to mention two). Hundreds of millions of euros are allocated to private consultancies to carry out projects of training and capacity building with state bodies as the clients.
In highly politicised countries such as Romania, however, building capacity is not taken seriously. As Tom Gallagher’s most recent and powerful book on the country vividly shows, there are more private agendas at work eg loyalty to the figure who put you in your position. And those academic social scientists who have resisted the temptation to go into consultancy are, understandably, more interested in achieving status with their western colleagues than in making forays into the real world of public administration. Again I speak generally – and from my knowledge more of southern than northern new member states.
As far as training is concerned, it is remarkable (given how much money is spent on it) how little discussion there is of its role and practices in new member states. Training can be effective only under certain circumstances. The very language trainers use – "training needs assessment" – begs the question of whether training is in fact the appropriate intervention. It is the easy option – it assumes that it is the lower levels who are deficient whereas the real issue may be organisational systems or the performance of higher management. I was recently in charge of a project designed to give such an institute the capacity to assist public officials at regional and local levels in the effective implementation of the complex EC Acquis (eg the various legal requirements of safety, consumer rights, equal opportunities, environment). The project was designed as a training project when, for me, the issue was totally different. I tried to develop my argument in several discussion papers but could not, for various reasons, reach the right people for a discussion. Amongst the points I was trying to make were -

• Organisations (state bodies) perform only when they are given clear (and limited) goals – and the commensurate resources and management support. This requires the systems and skills of strategic management.
• This can be developed only through senior management being properly encouraged to prioritise and draft realistic action plans – based on project management principles.
• The core mission of Institutes of Public Administration should be to encourage and help senior management acquire these skills
• But they cannot do this as long as they are trapped in an administrative role – and traditional teaching philosphies

What I remember is the anger I aroused at our final conference from a Professor of Law when I dared to say that state bodies should recognise they cannot implement the acquis in its totality (even with the few opt-outs negotiated) and should prioritise.
I will continue the argument in a future post.

Culture cornerI’m glad to say that art galleries continue to open here in Sofia. I had been disappointed earlier in the year to encounter a nearby gallery which seemed to have closed down but yesterday discovered that it had, some months ago, re-opened under new ownershop and is a charming visit. It is Gallery-Museum" CLASSICA" at 32 Venelin Str., Sofia near the football stadium at Eagle Bridge. Its old website can still be seen here with some of the paintings still on offer. Young Leta and her mother are delightful guides and hosts.

Our Gaddarene swine

This blog generally tries to steer away from crises since there are so many others in the blogosphere who have more insights than me on these – be they economic, financial or political. I try to be a distinctive voice on the things I know best – organisational change in transition countries - and otherwise try to pass on what seem to be sensible comments on ongoing events. The financial crisis, however, which has been rumbling on since late 2007 has, I feel, few real experts – in the sense of both contextual understanding and insights into what interventions would actually help put Humpty Dumpty together again. There are a lot of people, of course, who have the skills, understanding and contacts to exploit this situation for their own benefit but few (like George Soros and Nicolas Talib) able and willing to offer solutions in the interests of ordinary citizens.
Today, however, Paul de Grauwe has a useful comment on Social Europe/ which I would like to share in its entirety -

Imagine an army going to war. It has overwhelming firepower. The generals, however, announce that they actually hate the whole thing and that they will limit the shooting as much as possible. Some of the generals are so upset by the prospect of going to war that they resign from the army. The remaining generals then tell the enemy that the shooting will only be temporary, and that the army will go home as soon as possible. What is the likely outcome of this war? You guessed it. Utter defeat by the enemy.
The European Central Bank (ECB) has been behaving like the generals. When it announced its programme of government bond buying it made it known to the financial markets (the enemy) that it thoroughly dislikes it and that it will discontinue it as soon as possible. Some members of the Governing Council of the ECB resigned in disgust at the prospect of having to buy bad bonds. Like the army, the ECB has overwhelming (in fact unlimited) firepower but it made it clear that it is not prepared to use the full strength of its money-creating capacity. What is the likely outcome of such a programme? You guessed it. Defeat by the financial markets.
Financial markets knew that the ECB was not fully committed and that it would stop the programme. As a result, they knew that the stabilisation of the price of government bonds would only be temporary and that after the programme is discontinued prices would probably go down again. Few investors wanted to keep these bonds in their portfolios. As a result, government bonds continued to be sold, and the ECB was forced to buy a lot of them.
There is no sillier way to implement a bond purchase programme than the ECB way. By making it clear from the beginning that it does not trust its own programme, the ECB guaranteed its failure. By signalling that it distrusted the bonds it was buying, it also signalled to investors that they should distrust these too.
Surely once the ECB decided to buy government bonds, there was a better way to run the programme. The ECB should have announced that it was fully committed to using all its firepower to buy government bonds and that it would not allow the bond prices to drop below a given level. In doing so, it would create confidence. Investors know that the ECB has superior firepower, and when they get convinced that the ECB will not hesitate to use it, they will be holding on to their bonds. The beauty of this result is that the ECB won’t have to buy many bonds.
Why has the ECB not been willing to use this obvious and cheaper strategy?
Part of the answer has to do with the objections that have been raised against the idea that the central bank should be a lender of last resort in the government bond markets of a monetary union. Some are serious (moral hazard); others are phony (inflation risk). I discussed these in De Grauwe (2011) (see also Wyplosz 2011). My impression, however, is that these objections hide another more fundamental reason. The people sitting around the table in Frankfurt continue to believe that financial stability is not part of their core business, and, to use the words of Trichet, that there is only one needle on the Frankfurt compass and that is inflation. As long as this view prevails the ECB will be reluctant to do the obvious.
The result of this failure of the ECB to be a lender of last resort has been that a surrogate institution, the EFSF/ESM, had to be created that everybody knows will be ineffective. It has insufficient firepower and has an unworkable governance structure where each country keeps its veto power. In times of crisis it will be paralysed. As markets know this, its credibility will be weak.
To hide these shortcomings European leaders are now creating the fiction that by some clever leveraging trick the resources of the EFSF/ESM can be multiplied, allowing the ECB to retire to its Panglossian garden of inflation targeting. European leaders should know, however, that leverage creates risk, very large risks. These appear with full force when liquidity crises erupt. Thus when the leverage trick will be most needed, it will fail as it will show how risky the positions are of those who have guaranteed the leverage construction. Governments which now enjoy AAA creditworthiness will take the full blow of a 100% loss on their equity tranches and will lose their creditworthiness in one blow. The whole risky construction will collapse like other clever financial constructions of the recent past.
Academics have the reputation of living in an ivory tower far away from the realities of the world. My impression is that instead of the academics, it is the European leaders who have been living in an ivory tower. Disconnected from the economic and financial realities, they have created an institution that does not work and will never do so properly. Now they are creating a financial gimmick that, in their fantasies, they expect to solve the funding problems of major Eurozone countries. It is time for the European leaders to step back into the real world.

Craig Murray also has a brief and very succinct comment on the issue as does Der Spiegel in its article Politics stupid And I recommend the daily press summaries from Open Europe as the best there are at the moment on this issue.