A country’s financial markets go wild, analysts warn the debt is unsustainable and media reports claim bailout talks are imminent. But before a rescue is announced, comes another step: the denial.
An official might vow a bailout will be avoided and then call for it the next day.
Beyond mere indecision, the fact is officials have to play a game of poker with the markets, bluffing and sometimes withholding the truth at a time when a single word can cause financial panic.
“When it becomes serious, you have to lie,” recently said Jean-Claude Juncker, the prime minister of Luxembourg who as chairman of euro zone finance minister meetings is one of the currency union’s key spokesmen.
Even confirming the existence of discussions on explosive financial issues can quickly turn them into self-fulfilling prophecies that have serious consequences for a country’s economy by driving up borrowing costs.
“If you are pre-indicating possible decisions, you are fueling speculation on the financial markets, throwing into misery mainly ordinary people whom we are trying to safeguard from this,” Juncker said.
One scenario that EU officials are now firmly denying is that of a sovereign debt restructuring — namely allowing a country to partially default on its debt by extending repayment deadlines or reducing the total amount owed.
In recent weeks, rumors and press reports have grown louder about secret discussions among euro zone finance ministers about restructuring the massive debt of Greece — despite official denials.
Debt restructuring “is not part of our strategy and will not be,” the EU’s Monetary and Economic Affairs Commissioner Olli Rehn said Monday, echoing many of his colleagues in recent weeks.
But the markets appear to be listening to a different story. The yield on Greek two-year bonds is close to 25 percent — almost 23 percentage points higher than on equivalent German bonds — suggesting investors don’t believe official assurances that private creditors won’t be hit with losses before June 2013.
Few people have had to answer more questions about the seeming contradiction of official comments and market swings than Amadeu Altafaj Tardio, Rehn’s spokesman, who faces off with journalists at the EU’s press briefings almost on a daily basis.
“I know that every single word that I pronounce can have an impact on markets,” said Altafaj Tardio, a former journalist himself.
But those pressures cannot serve as an excuse to lie.
“There have been so many leaks and there are so many sources of a different sort involved that there is never room for any lies,” he said of the current crisis. “You don’t survive 24 hours if you lie in this environment.” Instead, the art of being a spokesman is to know when and how to release your information. “When I’m standing there on the podium, I’m doing political communication, I’m not an information desk,” said Altafaj Tardio. “We don’t tell all the truth all the time, but we never lie.” One of the difficulties of sending a clear message during the sovereign debt crisis has been the mass of different actors and divergent interests involved, with stories leaking from EU institutions, national diplomats in Brussels, as well as the finance ministries in the member states.
“A European crisis, viewed from Brussels, is much more complex (than a national one) because of all the member states,” said Tim Fallon, head of corporate and financial affairs at the London office of communications firm Hill and amp; Knowlton who also worked on the election campaign of former UK Prime Minister Tony Blair.
In the euro zone, 17 governments are not only trying to contain a crisis of their common currency, but are also scrambling to calm voters back home. For politicians in more prosperous states like Germany or Finland that means playing down the possibility of further taxpayer-funded bailouts, while less fortunate governments in Portugal, Ireland or Greece have to face off with citizens angry at painful austerity measures.
Politicians and spokespeople “have to control the agenda as much as they can,” said Fallon. That involves “putting out as many positive character statements as you can” about a country under pressure or simply having the courage to say “I’m not willing to comment on this,” he added.
“What you shouldn’t do is for there to be a black hole that allows the media to speculate,” said Fallon, while acknowledging that “there are some issues and some battles that you just can’t win or even control.” One reason for the lack of an impact some official denials have had on financial markets might be where they are coming from.
Investors listen to key players — which in this crisis are German Chancellor Angela Merkel, French President Nicolas Sarkozy, those countries’ finance ministers, and Jean-Claude Trichet, the president of the European Central Bank, said Carsten Brzeski, a senior economist for ING in Brussels.
“The rest, whether it’s the truth or whether it’s lies doesn’t really matter,” said Brzeski, whose task is to make sense of official statements for his bank’s traders.
Traders will often react to comments within seconds of a news flash hitting the screen of their information terminal, Brzeski said, while for economists the challenge is to weigh official statements with economic fundamentals.
In the case of Greece, those fundamentals show a debt load approaching 150 percent of gross domestic product in a shrinking economy — a combination that seems difficult to sustain in the long run, said Brzeski.
Strong denials might then be more of an indication of the “when” and not the “if” of a restructuring, he said.
“It clearly shows that they are probably willing to postpone it or to delay it as long as possible.”
