EU officials apply silent treatment to debt crisis
Tue Feb 1, 2011 10:51am EST
* EU policymakers belatedly adopt tight-lipped tactics
* Less talk avoids miscommunication, helps calm markets
* Aim is to have "comprehensive" crisis package by March
By
Luke Baker
BRUSSELS, Feb 1 (Reuters) - At the peak of the
euro zone debt crisis last year any number of European Union officials broke cover, often sending contradictory messages, creating confusion and volatility in the market.
The lesson appears to have been learned.
So far in 2011, while policymakers and other euro zone officials are still commenting, they are being far more tight-lipped than before, with several sources saying an edict has gone out effectively telling them to be more circumspect.
"There was just a feeling that message management wasn't well handled last year," a senior euro zone source involved with making changes to the euro zone bailout fund said last week.
"We're dealing with complex issues that require a lot of slow, detailed work. There's just a desire to get on with that and not discuss it before a complete package is ready."
Or, as another EU official put it more enigmatically: "There's an expression worth bearing in mind -- 'those who speak, don't know. Those who know, don't speak'."
The period of relative silence has allowed euro zone power brokers to work in earnest on a "comprehensive package" that they hope will draw a line under the debt crisis. It is promised to be completed for March.
That package could include measures such as an increase in the lending power for the bloc's rescue fund and more flexibility in how it can be used, longer repayment periods and lower interest rates on bailout loans to
Greece and Ireland and, on the other side of the equation, tougher fiscal discipline rules with better enforcement.
Last year, all those proposals would probably have been aired repeatedly, with some officials pro- and others anti-, creating an impression of confusion. Now, policymakers appear to be trying to do things differently.
It is not clear who issued the "no loose talk" edict, but Olli Rehn, the EU commissioner for economic and monetary affairs, made it clear at the end of last year that he was not happy with how EU officials were communicating in the crisis.
One notable misstep was when Herman Van Rompuy, the president of the European Council, suggested during a question and answer session in November that the European Union might not survive if the euro zone debt crisis was not better tackled.
The comment sent the euro sharply weaker and Greek and Irish bond yields soaring, producing the opposition reaction to what Van Rompuy probably intended.
"These are tough and confusing times," Rehn told the European Parliament days later. "They have brought forward nervousness and misinformation and therefore we all need to do our share in communicating properly on the challenges."
So far this year, Van Rompuy has said virtually nothing about the crisis or efforts to resolve it, although he will host a summit in Brussels on Feb. 4 when EU leaders will discuss energy issues and the debt situation.
MARKETS MOVE ON
Some
euro zone officials say the new policy -- if that is what it is -- has led to more calm in financial markets and suggest it has helped them get ahead of the curve, making market participants respond to policy rather than the other way around.
Some in financial markets have sensed the change in euro zone officials' attitude since the end of last year.
But rather than the tighter lips helping calm markets, they suggest that the fact policymakers are now getting to grips with the issues the markets were concerned about for most of 2010 is why there is less market pressure so far in 2011.
"What you are seeing is the political debate moving towards the market debate -- the policymakers are catching up to the issues to do with haircuts and debt restructuring," said Carsten Brzeski, an economist at ING who advises trading desks.
"
Germany is also now really engaged in dealing with the crisis. At one point in time there were market participants who really feared that Germany could pull the plug, but that doesn't look like it's going to happen now," he said.
He also pointed out that successful bond auctions in
Portugal and Spain at the beginning of the year helped calm market nerves, and that the discussion in the euro zone is now so technical -- focused as it is on the intricacies of the EFSF -- that traders are less immediately responsive.
With euro zone inflation having breached the ECB's target for the past two months and speculation about when interest rates will rise starting to bubble, there are certainly more straightforward themes to monopolise market attention for now.
"It's all entering a more technical debate which is right now less market relevant," Brzeski said of the debt crisis plans.
"Plus, we've had more or less everything that could happen. It's become technical, which means it quickly loses traders' interest."
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