Trichet Under Fire On Internal, External Communication
[Interesting article on the last ECB rate decision - mish]
Wednesday, April 7, 2004 2:20:00 PM
-- Some ECB Council Members Felt Trichet Went Too Far In Signalling Possible Rate Cut in German Newspaper Interview
FRANKFURT (MktNews) - The European Central Bank is facing disquiet, both inside and outside the institution, over its communications policy and the sense that its president failed recently to espouse clearly the views of the Governing Council and thereby sent a confused message to the markets.
To observers and insiders, the problem appears to boil down to two elements: President Jean-Claude Trichet's teething problems in providing a clear message and the fact that his attempts to lead Council opinion have not been inclusive enough. The currently confusing economic climate has simply exacerbated the communication problem.
The controversy stems from the preparations for last Thursday's Council meeting and Trichet's press conference afterwards.
Just ahead of the meeting, a Trichet interview with the German newspaper Handelsblatt was widely interpreted as hinting that interest rates could be cut under certain conditions. Consumer confidence was weaker than expected at this stage of the economic cycle, and if expected growth in consumption and domestic demand failed to materialise, "we would work out our assessment accordingly," Trichet told the newspaper. His remarks appeared to be reinforced by Guy Quaden, governor of the Belgian central bank and a member of the ECB's rate-setting council.
But Trichet had not taken enough of the Council on board with him when he made the remarks in the interview, sources said. As a result, last Thursday a core group of governors -- from the national central banks and the Executive Board -- blocked an imminent rate cut and, indeed, forced Trichet to dampen expectations of a near-term move.
[That's interesting - my perception was that Trichet was not in favor of a cut as opposed to being blocked by others. I will now change my stance on Trichet to being neutral as opposed to being hawkish. That is a good thing for those looking for a cut in Euroland I think. - Mish]
Before the meeting, but after the Handelsblatt interview, some Eurosystem central bankers were getting antsy: "We have not received a phone call yet, so we assume there will be no rate cut. At least, (Wim) Duisenberg always used to call" before a rate move, said one source, referring to Trichet's predecessor.
Referring to last Thursday's meeting here, a well-placed source said, "There was a rather robust debate and some members opposed the view that had been initiated by Trichet."
[It appears some of his commenst are being practical as to what can happen and how quickly as opposed to him actually refusing to cut until he actually sees a recession - mish]
Part of the problem of course also stems from the fact that the ECB itself is unsure of the direction of the eurozone economy. There are mixed signals and some countries are doing far better than others.
"If I was in the markets I would be very anxious at the moment," said one source. "The scenario of a gradual recovery is shrouded in fog. We are trying to steer the economy through this mist and, frankly, we do not know what the message should be. That is why we have a communications problem."
Some Council members are still concerned about a damaging build-up of liquidity. At the April 1 meeting a hard core of members -- thought to include the Bundesbank, the Dutch National Bank, the Finnish Central Bank and elements of the Executive Board -- wanted to send a much more balanced message than Trichet had prepared the markets for. Other sources indicated that the group opposed to a rate cut unsurprisingly included ECB Chief Economist Otmar Issing, regarded as a policy hawk.
Meanwhile, on the communication side, Trichet has at times tied himself up in verbal knots when using English at press conferences. Outwardly, senior ECB officials express happiness with Trichet, but behind the scenes there are concerns.
Duisenberg had "more of a touch of the ordinary man," said a well-placed source, adding that the Dutchman was better at steering the meetings of the Governing Council, intervening when speakers went on too long and summing up the views expressed to the media.
At his press conferences Trichet has tended to be long-winded. Rather than give a simple explanation or rebuttal to questions, he has often rambled or become tied up in double or treble negatives.
His five-point attempt to clarify the ECB's policy stance this past weekend at the informal Ecofin meeting in Punchestown, Ireland failed to clear the mist surrounding the ECB's policy intentions, with the EU's Dutch internal market commissioner, Frits Bolkestein, publicly making fun of the Frenchman's ponderous speaking style.
"Trichet tends to speak enigmatically," said a source. "Duisenberg had a simple message and left it at that."
At last Thursday's press conference Trichet appeared to become tied up over the issue of whether the ECB's decision to drop the word "appropriate" from its statement was significant in policy terms.
He offered the following explanation: "We trust that it was necessary perhaps to explain even more explicitly what was our policy diagnosis and that's the reason why ... 'appropriate' is shorter and that is longer and more precise explanation ... we wanted to be as clear as possible on our present analysis and that's the reason why we were more explicit. But the fact that we had said it was appropriate a month ago did not mean a month ago -- and I have to say that because it's important that our dialogue is as clear as possible -- did not mean at all that we were excluding anything in the months to come. It was not the case."
[God God this guy is worse than Bush (or at least as bad) on communication. Simply amazing. Mish]
Trichet should learn to be a "better communicator," said Olle Schmidt, a Swedish Liberal MEP. "Recently there has been a lot of puzzlement about what they (the ECB) are aiming at with their monetary policy. People really are not clear."
However, one eurozone central bank official said that while markets may be questioning Trichet's skills in transmitting the ECB's interest rate stance, "he deserves credit for his sure-footednesss on the euro."
"He communicated very well in the face of the euro's appreciation; he didn't allow himself to get drawn into discussing the forex rate directly, which was right, but his verbal intervention was prompt and effective," the source said.
"He helped to avoid a sense of panic but at the same time got the ECB's position across very clearly, and in fact the euro has moved as was hoped for."
Trichet's background is typical of a member of the French elite. Born in 1942 in Lyons, he graduated from the prestigious Ecole Nationale d'Administration. He served as an adviser to former French president Valery Giscard d'Estaing and was chief of staff of then finance minister Edouard Balladur in 1986-87. This kind of training made Trichet a formidable head of the Bank of France, but it may not have given him the right kind of experience for the more collegial ECB.
Duisenberg was an unusually plain-speaking central banker. That partly stemmed from his background in politics -- he served as Dutch finance minister from 1973-1977 and was subsequently a socialist MP. Previously he had been a professor at the University of Amsterdam. He saw himself more as a pragmatist, while Trichet is perhaps more of a theorist.
The Dutchman usually gave straight -- if sometimes overly terse -- answers to questions posed at the ECB's monthly press conferences or other occasional appearances, such as after G-7 meetings. It was a trait that at times got the irritable Duisenberg into trouble.
"He gives the impression of being a smoother personality than Duisenberg," ECB watcher Niels Thygesen, professor of economics at Copenhagen University, said of Trichet. "But with his civil service background, he's also less used to the limelight."
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