Lip Service From the ECB

The European Central Bank has gotten itself so gnarled and twisty-tied over the communication of its new “forward guidance” policy that it evidently felt inspired to give lessons in the art of communicating.

In a paper titled “Loose Lips Sinking Markets?” central bank researchers rooted through 25,000 news stories between January 2009 and October 2011 to discover that political pronouncements had an effect on bond yields, for worse or for better, in Greece, Ireland and Portugal.

The search algorithm plucked out statements by national prime and finance ministers and Brussels officials. It found that unelected European-level officials tended to be good-news people, while politicians ranting to their domestic audience caused trouble, whether by Greece-bashing or Germany-bashing.

There was also a recommendation: instead of, for example, “warning of a high risk of failure,” the prudent communicator should opine that “a rigorous implementation of the program is a crucial condition for the success of the program.” So, the euro will be saved by telling it like it isn’t.

The main hole in the analysis is that it exempts central bankers, who have their fair share of rhetorical sins to answer for. Think of then-ECB President Jean-Claude Trichet fumbling the message in May 2010, or of the Bundesbank’s defiance of the ECB’s top man — open in the case of Axel Weber, more guarded with Jens Weidmann.

Published this month, the research was done before ECBers Joerg Asmussen, Benoit Coeure and Weidmann loosened their own lips to spin President Mario Draghi’s effort to keep interest rates down for a long, long time. How about letting the search algorithm have a go at ECB-speak?

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