Bonum Certa Men Certa

Saint-Germain's Poisonous Legacy of "Toxic Loans": The Emperor’s New Investment Guidelines

"Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done."

--John Maynard Keynes, "The General Theory of Employment, Interest and Money," Chapter 12: The State of Long-Term Expectation



Emperor's new clothes



Summary: Details about a secret vote to 'gamble' the EPO's budget on "a diversified portfolio managed by external experts"

In a document dated 24 November 2017 (CA/F 18/17 Rev. 1) the current and soon-to-depart Emperor or “Sun-King” of the European Patent Office, Mr Battistelli, presented the Administrative Council with a proposal for "New Investment Guidelines of the European Patent Office". (warning: epo.org link; see local copy [PDF])



"The official record shows that of the 32 delegates present, only 6 voted against, 2 abstained and the remaining 24 voted in favour."According to information from EPO insiders the proposal was rubber-stamped with almost indecent haste by the Budget and Finance Committee of the EPO’s Administrative Council in December 2017. See SUEPO Den Haag publication. [PDF]

The official record shows that of the 32 delegates present, only 6 voted against, 2 abstained and the remaining 24 voted in favour.

An interesting detail here is that the matter was decided by means of a secret vote which was apparently requested by the Italian delegation.

More recently, EPO insiders report (see above) that at the last meeting of the BFC, which took place in Munich on 16 and 17 May, Mr Battistelli’s proposal to invest the EPO’s whopping cash surplus of around € 2.3 billion in the newly established "treasury investment fund" was also approved by a large majority of the delegations with only one vote against by the German delegation.

Soon after the adoption of the New Investment Guidelines in December 2017, a contributor to the Kluwer Patent Blog voiced his concern about certain aspects of the guidelines and he expressed the view that the permitted range of exotic "financial instruments" "appears to be unnecessarily extensive".

"An interesting detail here is that the matter was decided by means of a secret vote which was apparently requested by the Italian delegation."These concerns were echoed in March 2018 by another regular contributor to the Kluwer Patent Blog, Dr. Thorsten Bausch, who noted that the EPO "literally sits on a heap of money; so much money that the President has written (warning: epo.org link; see local copy [PDF]) to the AC’s Budget and Finance Committee, asking them to liberalize the Investment Guidelines, so that the EPO can start investing in more exciting financial instruments such as currencies, derivative instruments, asset-backed securities (ABS), mortgage-backed securities (MBS), Credit Default Swaps (CDS) or in summary: ‘a diversified portfolio managed by external experts’.

Bausch recommended his readers "to study this document in full" and noted that it had already been critically discussed in the earlier January posting on the Kluwer Patent Blog. He shared the concerns expressed by the previous contributor and opined that "the experiences of Harvard University and others in 2008/2009 should be a lesson to all of us."

"Mr Battistelli’s proposal to invest the EPO’s whopping cash surplus of around € 2.3 billion in the newly established "treasury investment fund" was also approved by a large majority of the delegations with only one vote against by the German delegation."If Dr. Bausch was looking for cautionary tales in such matters he need not have ventured so far afield across the Atlantic to Harvard.

A quick glance over the Franco-German border into the political "backyard" of the Deputy Mayor for culture in St. Germain-en-Laye would have been sufficient to alert readers to the risks of dabbling in the kinds of exotic and exciting "financial instruments" foreseen in the Emperor’s New Investment Guidelines.

We think that it could be instructive to have a closer look at the SIDRU “toxic loan” débâcle in St. Germain-en-Laye.

"We think that it could be instructive to have a closer look at the SIDRU “toxic loan” débâcle in St. Germain-en-Laye."Our aim is to encourage a more critical approach on the part of all stakeholders including the general public to current attempts to (mis)use EPO funds for speculative gambling in the global casino of the international financial markets.

We hope that a careful and diligent study of the cautionary tale which follows will yield a “prudential” dividend for all those who make the effort to digest the details.

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