Showing posts with label communication. Show all posts
Showing posts with label communication. Show all posts

Thursday, September 05, 2013

ECB preview - is the ECB already seeing the limits of its new communication policy?

The ECB holds its monthly meeting today in what may be seen as the most positive eurozone economic environment for some time.

Having previously been earmarked as a meeting which could see a further rate cut (a prediction which has evaporated due to more positive economic data) this meeting is now likely to be dominated by ECB President Mario Draghi’s attempts to restate his new communication policy.

July saw the launch of this policy, focused on ‘forward guidance’ (forecasting future interest rates) and the potential publishing of minutes of ECB meetings, in an attempt to add a new tool to the ECB’s monetary policy arsenal. However, in recent weeks there have been indications that the ECB may already be seeing the limits of such an approach.

Forward guidance struggles

  • As the chart above shows (via Commerzbank) indicators suggest that future overnight short term interest rates are expected to increase, while the borrowing costs for short term bunds and other core eurozone countries have also been creeping up. Expectations of an ECB interest rate increase have also been brought forward significantly, whilst the euro has also been strengthening recently.
  • Much of this is off the back of recent good data from the eurozone, of course a positive, but given that the data is far from comprehensive and problems still abound for the eurozone its clear the ECB is not yet ready to change course.
  • Of course, given that it is early days for this policy and that the rate moves have been small it is impossible to draw a definitive judgement just yet, but there are signs of limits to the policy.
ECB Total Balance sheet (€m)
  • The ECB is also seeing its monetary policy being effectively tightened as the Long Term Refinancing Operation (LTRO) loans are repaid, with its balance sheet shrinking (chart above) to its smallest size since the start of 2012, and no signs of banks increasing lending to the real economy to compensate. Again, a positive indicator but not quite what the ECB might have wanted with the introduction of a new tool indicating loose monetary policy for some time.
  • External conditions have also not been helping. The Bank of England is facing a similar issue, for similar reasons, while the US Fed has announced the prospect of slowing down its Quantitative Easing programme – the much maligned ‘tapering’. This has unsettled markets and threatens to reduce liquidity globally – so far much of the pain has been felt in emerging markets, but it could yet spill over into peripheral Europe, hitting demand for government and corporate debt and pushing up borrowing costs.
Backing away from minutes

The other part of this new communication strategy was a move towards publishing minutes of ECB Governing Council meetings, with many ECB members issuing support. However, there are indications that this may also come up against problems (as might have been expected).

The concern has always been that divergent views within the ECB (read, from the Bundesbank) would make ECB minutes more trouble than they’re worth. Over the past few weeks we have seen the Bundesbank use its monthly bulletin to warn that rates could still increase and attempt temper the commitment under ‘forward guidance’, while its President, Jens Weidmann, has also warned of the potential "pressure" on decision makers if minutes were published. Additionally, comments from Austrian Central Bank Governor Ewald Nowotny suggested that the ECB might be backing away from the plans (such interventions are rarely made without some approval from the ECB hierarchy as we saw when minutes were proposed):
“My personal view is that of the founding fathers of the ECB…They were very cautious to secure the independence of the ECB by not giving minutes on the individual votes of the members of the Governing Council.”
All these factors then, have worked to expose some of the frailties of the ECB’s guidance policy, not least that it remains much more vague and unfocused than those employed at the US Fed and the BoE. The ECB (with some good reason) is hesitant to get into specifics over the timeline and conditions for keeping rates low – this will clearly hamper the usefulness of this policy tool (and brings us back to questions about how many tools the ECB really has at its disposal).

In fact, there is already talk of using another LTRO to bolster this policy and help stop any upward movement in rates, although given the limited impact of the initial LTROs (beyond avoiding a bank funding crisis) this may not help much.

All that said, the ECB is unlikely to drop its new communication approach in the near future, leaving Draghi the unenviable task of continuously restating the ECB’s commitment to this policy – expect this to begin in earnest at today's meeting.

Monday, January 14, 2013

Cameron's EU speech: The only way is up?

When it comes to Europe, the UK government can make your head spin. Cameron's EU speech is now officially scheduled for Friday 18th Jan, after several twists and turns.

The speech was originally scheduled to take place at the end of last year but with the controversial EU budget negotiations taking centre stage and the anniversary of Cameron’s veto setting an adversarial tone it was pushed into the start of this year (the official line was that Cameron was looking to consult more closely with his EU partners).

After the turn of the year, the guessing game over the timing and location resumed, with the government keen to invoke the spirit of Thatcher’s 1988 speech in Bruges. Eventually, it was settled. 22nd January in the Netherlands.

Unfortunately, that date turned out to be a bit of a disaster: the 22 January 2013 is the 50th anniversary of the signing of the Elysee Treaty. Unsurprisingly, the French and German governments were none too happy with the timing, given that it clashes with a major landmark in Franco-German conciliation (so much for further consultation with European partners - or rather 2 minutes worth of Google-research). 

This is hardly impressive handling of a delicate topic (we can’t help but think back to our ten lessons which we outlined following the UK veto in December 2011, with two of the top three being - get in early and communicate effectively.)

The good thing is that, following all the interventions from near and afar - and all the hyperventilating from all sides - there's no way Cameron can now try to manage the reactions to his speech; he lost control of that long ago. So he might as well forget the choreography, and instead set out what he actually believes in, keeping in mind that it needs to work for both the UK and Europe if it is to work, and articulate his genuine vision for the future of Europe.

Hopefully, it can only go up from here.

Monday, June 25, 2012

The eurozone crisis in 140 characters


The eurozone crisis - with its numerous rolling summits, announcements, proposals, simultaneous economic and political developments in multiple member states and fast-paced market reactions - has brought Twitter to the forefront of EU reporting and analysis.

Unlike English football commentator Mark Lawrenson, at Open Europe (as in @openeurope) we like twitter and use it to keep up with various euro developments, as well as to flag up key events and our own analysis. It's a great supplement to our increasingly popular daily press summary. Of course, the key is not only to tweet fast - and summarise often complex economic and political concepts in 140 characters - but to also get it right. Which is why we were very pleased to see that Barron's - a leading American financial magazine - has selected Open Europe's twitter account as one of five that “consistently provide great information and trenchant analysis” on the Eurozone crisis.

Barron’s notes
"Once again, Twitter is proving its mettle as a source of instant news and analysis—this time on the euro crisis. Just as it did last year during the Arab Spring and the meltdown at Japan's nuclear plants, the social network is producing a constant stream of real-time information on the big news story of the day—some of it spot-on, some not. The trick is to follow the right people, or tweeps, and Barron's is here to help with that." 
The magazine notes that Open Europe's strength is its "Deep bench of analysts tracking political developments", describing us as
“a think tank based in the UK that deploys a small army of research analysts fluent in more than a dozen languages to keep tabs on the crisis, both reporting and commenting on the news. A recent typical tweet dismissed any reasons for optimism for Spain after its 10-year bond yield fell below the critical 7% level. If investors were buying on rumours that the European bailout fund would buy the troubled bonds, forget it. Yes, all that in one tweet.” 
Many thanks for that. Please forgive us the shameless self-promotion but if you don't already, do follow us on twitter @openeurope.

Ps. The other four selected are @pawelmorski, @economistmeg, @LorcanRK, @alea_ - all worth following.