As the news machine and the markets once again begin to move through the gears after the festive break, the European crisis is back at the centre of the economic and political agendas.
The fundamental reasons for the eurozone’s sovereign crisis: excessively cheap debt mixed with an absence of fiscal discipline in a multi-speed single currency zone are hardly in doubt.
However, the response to the crisis has appeared at times to be a combination of muddle-throughs, quick fixes, missed targets and half-completed solutions.
From a news perspective, the eurozone’s slow motion collapse was the economic story of 2011, replete with deadline dramas and dramatic swings in the markets that, on many occasions, seemed to be only loosely connected
Markets were at times trading into an information vacuum. The stability of the eurozone was, and remains, the clearest threat to the global recovery, and investors looked increasingly to the tangled politics at the core of the union to try to understand what the actual risks were.
What they found was an institutionally opaque, often parochial, set of organisations that seemed to be pulling in all different directions.
From day one, investors believed that many senior European policymakers had not only failed to take the bull by the horns, but were still refusing to acknowledge the existence of the bull.
It was only in the late autumn that senior politicians began to openly talk about the existential threat to the euro, and only in November, after then-Greek Prime Minister George Papandreou’s near-derailment of a bailout package, that the French and German governments publicly raised the threat of Greece being pushed out of the euro.
Economists and investors said that the many politicians in the EU fundamentally did not understand the markets when the crisis began. They were in the main unaware of how their leaks would drive investors in or out of peripheral bonds and push up the costs of borrowing. They tested concepts by leaking them to the media, giving out half-finished ideas that artificially built expectations.
“Some of it was politically motivated, some of it was just serious structural issues, whereby the sheer institutional complexity of the EU you have far too many cooks in any broth… compared to a normal country,” Sony Kapoor, the managing director of the Re-Define think tank, said.
“It was partly the institutional structure, it was partly the result of a communication strategy that was designed for peacetime, not for crisis.”
That failure to communicate honestly from the centre, combined with an increasingly hungry rolling news media, let to a large number of politically-motivated leaks, which in turn led to untested theories and half-truths driving markets that were otherwise starved of information.
Kapoor pinpoints two moments in particular: The International Monetary Fund (IMF) meetings in September, where news leaked over significant contributions from the institution to the EU’s crisis response, and a story a few weeks later, again based on anonymous sources, that said the European Financial Stability Facility (EFSF) at €2tn.
The EFSF was a major pillar of the response to the crisis, and, if scaled up significantly, would be able to backstop the bonds of failing nations and give investors confidence that they could continue to lend at less punitive rates.
“I happened to be present at both occasions and knew it to be untrue. But it moved markets and it generated expectations that were far too high which never met with reality,” Kapoor said.
Société Générale is currently taking legal action against Associated Newspapers over a Mail on Sunday story, published in August, which suggested – erroneously – that the French bank was on the verge of collapse.
Coming at a moment when French banks were in sharp focus over their exposure to sovereign debt in the periphery, the effect, even coming from a paper not renowned for its knowledge of the intricacies of the European banking sector. The Mail published an apology and retraction, but the damage was done, with that report, at least according to SocGen, contributing to its shares falling 33% across the month.
That story ran away with itself in the French media, with further rumours linking it to a fictional series published by Le Monde, eventually ending in Erik Izraelewicz, the paper’s editorial director, publishing a front-page editorial pointing out the irony in fiction itself becoming wound up in the rumour mill.
A number of European insiders and market participants who spoke to the Huffington Post UK for this story, however, are quick to put the blame at the feet of the media itself.
“I think that it ended up being a highly toxic combination of media scoops and deadlines, bad communication strategy and fragmented institutional structure, and they drove each other,” Kapoor said.
“I thought it ended up being on the whole an irresponsible media response, which focused far too hard on generating scoops and in part the movement of markets was, in the financial press, considered part of the criteria for a successful story,” he said.
“It was just generating very febrile and fragile kind of muddle of what was true, what was news and what was just some random CDU parliamentarian in Germany saying something. It became far too headline-driven.”
As inner circles tightened, increasingly junior political figures and fringe players were being developed as sources. In some cases – confirmed by sources within the rolling news media – a mixture of unfamiliarity with the subject matter and the pressure to generate headlines quickly led to a certain “relaxation” of the qualifications required to be classified as an influencer.
It seems spurious to say that the crisis was worsened by, on a slow news day, a producer’s calculation to take, say, a German parliamentarian’s comments reported in a German-language newspaper and extrapolate from them a new line on a crisis that was happening in slow motion.
Except that, in the information vacuum created by the absence of clear communication from a single, central source, markets were often clutching at straws.
Very often it felt as though the channels were reporting what the markets were doing, and the markets were responding, leading to destructive – or, rarely, constructive – feedback loops.
One senior staffer at the international business channel CNBC came to routinely describe such days with a single word: “wagging.”
As in, the tail is wagging the dog.
TV channels and, to a lesser extent, newspapers, boosted their in-house resources to better understand the unfolding crises.
News teams around the world suddenly had to sit glued to the newswires and try to understand voting systems in Greek parliamentary democracy. Staff tell of numerous pressures to produce or inflate, of pulling stories at the last minute on the discovery that institutions quoted either do not exist or are not within the EU and on rumours that confuse billions with millions of euros.
Except that, in many cases, they struggled with the complexities in the process, returning, some in the industry admitted, to reductionist narratives – that each point supported a wider belief that the eurozone would collapse. That is not to say that they were deliberately pushing that agenda, rather that they – we – were and are content to try to place all information on a narrative arc where the cliffhanger – the survival of the euro – was being approached episodically.
According to sources inside the industry, some on the newsdesks began to worry – and sometimes voice their fears – that the news media was becoming part of the problem.
“Personally, I genuinely don’t believe that at all,” Mark Evans, head of home news at Sky, told The Huffington Post UK. “What I think we’ve done is open up that decision making process, that negotiating process, and made that more transparent to the people that it actually effects when they’re going about their daily business.”
Evans also rejected the notion that the media inflated expectations ahead of summit meetings.
“When you have people conducting the very negotiations coming out and saying we have ‘ten days to save the euro’ that’s absolutely, categorically, not a news channel saying that. They were imposing the deadlines, they were talking about the structures that needed to be put in place, and then the markets would either scupper or bolster what was being said,” he said.
“From my perspective, all we have done is desperately tried to make the process more transparent and easier to understand for the people who have seen their wages fall and their cost of living rise.”
Lessons have been learned, it seems. How policymakers communicate with the market has begun to evolve in the past few months. As the crisis intensified in the final quarter of 2011 the rhetoric hardened and the earlier attempts to shrug off the gravity of the threat to the euro finally gave way to blunt realism.
October saw the end of one of the more blatant examples of the rhetorical mess of European institutional communication – the Jean-Claude Trichet codeword system.
Trichet, the Frenchman who was president of the European Central Bank (ECB) until November, developed a lexicon of hints to allow the market to know in advance what the bank’s thinking on the next month’s rate would be, without actually committing to a decision.
Most famously, the words “strong vigilance” spoken in the press conference meant that another rate hike was on the cards next month. Soon, markets and media knew what the decision would be, and instead began to watch Trichet’s opening remarks at the press conference far more closely.
The result was that the ECB became locked into the system – failing to stick to the code would lead to markets reacting prematurely to an expected policy decision, and could undermine confidence in the institution.
Mario Draghi, Trichet’s successor, did away with the code and demonstrated a willingness to engage far more bluntly with the media and the market.
Something that Kapoor and Evans agree on is that the rest of the eurozone’s decision-making architecture needs to do the same.
“Some of it was inevitable, given the nature of the situation,” Kapoor said. “But that’s not to say that things couldn’t have been done better… on the side of the officials and by the media itself.”