Can a public-sector organization be a tech leader? The European Stability Mechanism (ESM) – Europe’s lender of last resort – has had a good track record in providing financial assistance to Eurozone countries that have lost access to capital markets. With further financial integration a key goal in the European Union (EU), one question is whether the latest financial technologies — fintech — can help make this become a reality more quickly. In this opinion piece, Kalin Anev Janse (@kaanev), a millennial who is the secretary general and also a member of the management board of the ESM (@esm_press), explains how this public-sector organization can become a fintech leader that could “break down borders for private equity investment and venture capital — and reduce Europe’s heavy reliance on bank lending.” (This article reflects his personal opinion).
I vividly remember the day my dad brought home a first laptop. It was 1990, and I was eight years old. I used it for 10 hours in a row and was so excited I did not sleep the whole night. A few weeks later he gave me the best present I’d ever had: my own Intel 386. I could keep it in my room and I had to build it from scratch. I loved it.
Since then, many other computers have followed that first one. I always had one golden rule: I wanted to configure them, build them and code them myself. Coding was less easy back then; you had to use books and magazines. Trial and error was the best recipe for success.
The Generation of Tech Natives
My friends and I were learning by trying to gain access to each other’s computers, lock each other out of accounts and send the odd ICQ (an early instant messaging program) “bomb” that would open up thousands of screens. We were young kids testing the limits of our toys. This was the early 1990s, and programming was something new. I was technologically naive, but I had a lot of fun and it was the best way to learn how to deal with the technology challenges of today.
Fast-forward two decades. In 2010, Klaus Regling, the head of the euro-area rescue fund for the European Stability Mechanism (ESM), asked me to join the board. I agreed, and said that I wanted to build the Google of the public sector. He looked at me and asked: “Why Google? We can be better than that.” And of course, he was right.
“The ESM is actively pursuing the use of fintech, with a focus on data analytics, and more concretely, the ESM is developing tools to analyze market data and investor patterns.”
I have now been on the management board of the ESM for six years, and I have 26 years of tech experience under my belt. I am of the first generation that lives and breathes technology, and technology is at the heart of the ESM. So let me first say a few words about the institution.
A Big Public Financial Player
The ESM provides financial assistance to Eurozone countries that have lost market access. It was set up at the height of the euro crisis. Without the ESM, countries such as Greece would have defaulted, and the euro would have broken up. The ESM is the institution that kept the euro together during the crisis. Our total lending capacity is $742 billion. We have provided assistance to five countries: Greece, Ireland, Spain, Portugal and Cyprus. In all, we have provided $281 billion in loans, which is three times as much as the IMF over the same period of time.
We follow the same “Cash-for-Reform” approach as the IMF — and it is working. Former program countries such as Spain and Ireland have the highest growth, and no taxpayer money is spent in these programs. We fund ourselves in the fixed-income market by issuing bonds and bills.
We are the largest euro-denominated issuer in our peer group, and this year we are planning to raise $60 billion from investors. Because of our strong credit ratings, we can do so at very low costs of around 1%, and this constitutes substantial savings for our program countries.
Here is how we are planning to move forward to build a modern public institution.
Digital at Heart
I was very lucky to join the institution as the ninth staff member — we were a true public sector start-up, and this provided us with a unique chance to build a modern and innovative institution. I did not want to be part of a bureaucratic institution, and as a crisis resolution mechanism, it is in our mandate to be able to be flexible in different situations.
As the ESM’s secretary general, I found myself in charge of setting up the youngest international financial institution, and so from day one we decided we would do a few things differently.
First of all, we wanted a lean model, and so we kept only the strategic functions in-house, like funding, economics and investments. We outsourced support functions and non-strategic functions as much as we could. We were the first financial institution worldwide to use a fully cloud-based trading system. We did not see a need to run a single server at our facilities and we still don’t. Other functions like payroll and accounting are outsourced as well, and this allows us to run a €1 trillion balance sheet with a staff of just 170 people.
Secondly, we wanted to leverage new technology where possible. We are part of an innovative group of tech pioneers which brings together venture capital investors, tech start-ups and financial institutions like ours. The ESM is actively pursuing the use of fintech, with a focus on data analytics, and more concretely, the ESM is developing tools to analyze market data and investor patterns. One example is the ESM’s use of financial networks to help analyze and visualize how political or economic events affect market sentiment. We work together with academia and a London-based start-up to develop big data-based time-lapse videos.
Finally, our workforce of tomorrow, made up of millennials, is the first in our field to consist almost entirely of technology natives. In order to make our institution appealing, we created our own internal social media, we allowed staff to connect and to work from anywhere through mobile technology, and to participate in meetings through video conferencing. At heart, we are a digital organization.
Navigating Cyber Threats
Given all this technology, you may wonder how we deal with cybersecurity. Like everybody else, we see this as a growing threat. The world has changed a lot from my days as an 8-year-old. Technology was ancillary to the core business back then — now, it is at the heart. We saw, for example, how big airlines can be disrupted for hours when their technology does not work, and the Delta Air Lines IT meltdown last year was only one example.
While internal tech threats are often avoidable, external ones are hard to predict. Examples are the SWIFT (an interbank messaging service) hack last year, and what happened at the German Parliament. According to many media reports, cyber bots have influenced