Attali runs out of credit: The EBRD president was finally forced to yield to calls for his head, writes Richard Thomson
Sunday 27 June 1993
Later that morning, he walked into a meeting of the bank's board in the large boardroom overlooking the City, with the dome of St Pauls in the distance, and passed around copies of his resignation letter. In explanation of his move, it said: 'The Bank has come under increasing negative press attention in recent months. I know of no action that I have taken that in any way could be worthy of reproach. Unfortunately this attention has begun to have a detrimental effect on the bank's work, and on its staff, and it is with the interests of the Bank in mind that I have taken this decision.'
The 23 directors were surprised but not shocked. Attali, 49, had taken the decision to resign unprompted by the board, so the timing was somewhat unexpected. But everyone in the bank had become increasingly certain over the last few weeks that Attali would have to go. There was relief when he finally resigned.
Although Attali saw nothing wrong in his behaviour, too many other people did. The trigger to his resignation decision were two press reports on Friday morning. One in the Independent said there could be an exodus of senior staff unless Attali was replaced. It reflected the fact that political infighting was bringing the bank to a standstill. The Financial Times reported that Attali had been reimbursed twice for the same first-class air fare to Tokyo and had collected dollars 30,000 (pounds 20,000) for a speech there, even though bank staff were not supposed to be paid by anyone but the EBRD.
But it was only the culmination of nearly three months of damaging disclosures about Attali and the EBRD. In April, the FT disclosed that the bank had spent pounds 55.5m on refurbishing its new headquarters in Broadgate, the second set of offices it had occupied in London since its establishment in 1990. The expenditure swallowed the whole of the pounds 45m grant that the British had given the bank. Of that, pounds 750,000 went on exchanging the red Travertine marble in the bank's lobby for pale Carrara marble. Works of art and carpets specially woven to even out the light in the bank's offices also swallowed money.
Senior staff were, in many cases, more highly paid than in other multinational organisations such as the World Bank. (Attali was on four-year contract with a tax-free salary of around pounds 250,000 a year.) The EBRD's expenditure on itself was twice as much as the bank's actual lending in 1991 and 1992, its first two years of operation.
The bank also blundered, as far as its public image was concerned, by spending pounds 600,000 on hiring executive jets to fly Attali and his staff around Europe. He would go on lightening visits to meet top politicians in former Soviet republics and Eastern European countries, spending only a few hours in each. Some trips cost considerably more than they might have done because the bank paid for him to stop over for the night in Paris with the meter, as it were, still running.
As the furore mounted over the way Attali was running the bank, the Group of Seven industrial country shareholders stepped in. In disgust, the US - a 10 per cent shareholder - cut off its funding for the bank. The G7 tried to rope in Ernest Stern, the number two at the World Bank, to help out at the EBRD. Attali incorporated this into a reorganisation plan of his own, which duly angered existing bank staff. Many were already fed up with his autocratic style. Ronald Freeman, Attali's deputy, threatened to resign if he was demoted under the restructuring. Others grew restive. Morale in the chic Broadgate offices slumped.
Coopers & Lybrand were sent in by the shareholders to investigate the expenditure. Their report is expected on July 15, but a draft will be considered by the Group of Seven countries at their meeting in Tokyo in 10 days' time. It could have proved the end of Attali's reign at the EBRD had he not resigned two days ago.
Attali, showing signs of stress, had tried to fight back by claiming that the money for the speech had been given to charity; that the air fares were an administrative muddle; and that, in any case, he was too well paid to need to fiddle his expenses. The damage to his reputation, however, had already been done. He also denied any involvement in the decision to replace the marble. In the end, it did him no good.
The truth is that he had always been on a sticky wicket, because many of the EBRD shareholders had never liked his style. Unquestionably a man of immense energy and intelligence as well as considerable charm, the idea for an East European development bank had been his. He managed to set up the EBRD in only two years but never won the confidence of his backers.
Attali comes from a wealthy Jewish family based in Algeria, where his father was a perfume retailer. He received a high-flyer's education as an economist. In 1972, he met Francois Mitterrand (in a nightclub, it is said) and the two developed a close relatioship. For seven years while Mitterrand was President of France, Attali sat outside his office and controlled who went in to see his master.
He is also the author of at least 15 books. He had immense self-confidence, was frankly immodest about his own abilities, but had no practical banking experience. He was, however, appointed to the EBRD with French political backing as part of a compromise with the British, under which the EBRD would be based in London.
Many of the shareholders, such as the US, had never really wanted him, and the sniping began almost immediately. He was notorious for being late for meetings, for agreeing to initiatives and then doing little about them; few dispute that he lacked the ability to put his vision into effect and provided ineffectual leadership at the bank. And he had a remarkable ability for rubbing people up the wrong way.
The US, however, made his job harder by insisting that most of the EBRD's lending - 60 per cent of it - should go to the private sector in Eastern Europe rather than to public infrastructure projects. In ruined economies with little experience of private enterprise, this was a tall order.
It has been able to lend very little, for example, in the former Soviet Union, Romania or Bulgaria. So it is not entirely surprising the EBRD has taken so long to build up its loan portfolio. Nevertheless, Attali took the flak.
While Mitterrand was still at the height of his political power, his former protege was safe. But with the election of a right-wing government in France earlier this year, his political clout waned and Attali became more exposed.
Mrs Wibble will call a meeting of the bank's shareholders before the G7 meeting in Tokyo on July 7 to choose a successor to Attali. Ernest Stern must be considered out of the race, because the Europeans would not accept a US head of a European bank. Onno Ruding, the former Dutch finance minister who was Attali's main competitor for the presidency two years ago, is likely to be a contender this time. So too is Karl Otto Pohl, the highly respected former chairman of the Bundesbank, and Jean-Claude Trichet, the head of the French Treasury. But the former Franco-British alliance that got Attali appointed in the first place no longer exists.
Whoever is chosen, the bank's basic policy of funding private sector investments looks certain to remain. But the shareholders, the bank's staff and the East European economies will be praying that whoever takes over will get the bank moving and repair its reputation.
In the meantime, Attali will certainly move back to Paris - he never liked London which he regarded as inhospitable. No doubt, we can expect a book from him shortly explaining how he was misunderstood and hounded out of his own creation by hostile Anglo-Saxons. And he may not be wrong.
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