Political communication in the interests of Greece.

The year 2014 was one of the most challenging in the history of the ECB. Multiple legal acts were adopted and came into force in 2014, including the SSM Framework Regulation governing the supervisory cooperation between the ECB and the national competent authorities (NCA).  On 4 November 2014 the ECB assumed responsibility for the supervision of euro area banks, following a year-long preparatory phase which included an indepth examination of the resilience and balance sheets of the biggest banks in the euro area.

The ECB will directly supervise 120 significant banking groups, which represent 82% (by assets) of the euro area banking sector. For the remaining 3,500 banks, the ECB will set and monitor supervisory standards and work closely with the national competent authorities on the supervision of these banks.

After six years of recession, 2014 was also a turning point for Greece, with the economy finally returning to growth, estimated at 0.8%. The recovery to date has largely been built on consumption and net trade. As of this year, and for the first time since the start of the crisis, GDP is expected to grow in every country in the EU. Throughout 2014 there was gradual domestic healing in the Eurozone as consumers regained confidence and the unemployment rate stopped rising. This will be supported in 2015 by two important growth drivers – sharply lower oil prices and quantitative easing (QE) enabling consumer spending growth to accelerate from 0.9% in 2014 to 1.6% this year.

Following the 2008-2009 international financial crisis, and notably in the aftermath of the Lehman Brothers bankruptcy in autumn 2008, fiscal imbalances increased in most European economies and the euro area in particular, reflecting the high fiscal cost of the measures taken to contain the fallout from the credit crisis. These developments have been followed by a sovereign debt crisis, which started from Greece in autumn 2009 and gradually engulfed the whole of the European Economic and Monetary Union (EMU), particularly the so-called periphery EMU economies.

There is a widespread belief that changes in expectations may be an important independent driver of economic fluctuations. The impact of political announcements, including policy-makers’ public pronouncements on fiscal policy and public finance, information system, which include news media releases, offers a formalization of this perspective.

One of the aspects of the European sovereign debt developments that have been extensively debated is the role of credit ratings in determining intra-EMU government bond yield spreads. In efficient markets, and as long as credit ratings/outlook announcements are determined on the basis of publicly available information. Sovereign credit ratings are statistically significant in explaining spreads, yet relative to macro- and fiscal fundamentals, their role has been rather limited.

Usually, policy makers want to avoid risks that might threaten financial stability. Indeed, european leaders have been a strong supporter of the development of stricter controls on banks through a Single Supervisory Mechanism and a Single Resolution Mechanism with a Single Resolution Fund. The Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM) are essential pillars for a more robust and resilient framework to help prevent future financial crisis, and to intervene and ultimately resolve banks if needed. This, with further harmonisation of supervisory practices, to ensure coherent and consistent application of the Single Rule Book across the SSM, will be a crucial component of achieving further financial integration.

Political communication.

A factor that may play an important role in driving sovereign spread movements is political communication. In particular, discussion about the allocation of public resources with a particular emphasis on the purpose affecting the political environment. This includes discussions that are public and, therefore, could be related to public speeches, messages by policy-makers to convince the markets about their ability to effectively address economic imbalances and many challenges that must be addressed before a proper assessment of future demands.

Recent results on political communication indicate that only fiscal policy announcements made by members of Monti’s cabinet had a signifcant impact on the Italian spread in the expected direction. “These results may be partly related to a credibility gap between Monti’s technocratic administration and Berlusconi’s and Letta’s governments, when they signalled both budget improvements and budget deteriorations.”

The recent results show that the surge in the spreads of Portugal, Ireland, Greece and Spain in the period 2010-2011 was not linked to the underlying increases in the debt-to-GDP ratios, but was connected to negative market sentiments. In particular, the messages by policy-makers were not able to convince the markets about their ability to effectively address economic imbalances. This knowledge of public speeches by policy-makeres played an important role in affecting investors’ evaluations and, agents who adopted similar behavior related to movements in political communication.

However, by the very fact that such behavior involves speculation on information related to future developments of the economy, it will be subject to errors. Neuroeconomics suggest that the concept of a preference is not a primitive (as Pareto suggested); preferences are both the output of a neural choice process, and an input which can be used to study responses to changes in prices and wealth. We try to predict the true state from the sender’s message and “when” they send their message.

The haircuts set under ELA operations aren’t public.

The European Central Bank is studying measures in emergency funding for Greek banks- ECB President Mario Draghi has signaled he isn’t yet convinced of the need to squeeze Greek lenders further. Speaking to reporters on April 15, he said haircuts were “mentioned, not discussed” by governors at their monetary-policy meeting. “We will come back on this issue in due time.” The haircuts set under ELA operations aren’t public.

Events in Greece rattled financial markets at times. There is an urgent need to speed up negotiations with Greece government. In fact, we were facing the greatest financial crisis of this country since the Great Depression. And we were looking at the prospect of even entering a great depression. The entire financial structure of the country was on the brink in 2009-2010 and ready to collapse.

Thus this weekend Euro-area officials are striving to find a new way to persuade Greece to make reforms. The Latvian meeting of euro-area finance ministers and central-bank governors in Riga will be another test to persuade Greece to make reforms in exchange for aid, and so to keep the country in the currency bloc.

Several senior officials have privately argued that Mr Tsipras should abandon the far left of his Syriza party and embrace more moderate groups to form a coalition that could implement reforms. It’s in the interests of Greece, its creditors and “the entire world” for the sides to reach an agreement. EU policy makers want Athens to agree and legislate for new reforms before the eurogroup will approve payments. A less integrated EU might indirectly have negative consequences also on the transatlantic relationship.

“We have an opportunity before us to address global problems”

Over the past years we have learned that like other international competitive market,  the EU:s internal market is Europe’s best asset in times of increasing globalisation. And we need the T-TIP, which will strengthen trans-Atlantic bonds and put us in an even stronger position to take on shared challenges with our closest allies. As, John Kerry, U.S. Secretary of State, said; “We have an opportunity before us to shape and to elevate the global rules of trade for decades to come”.

Speaking at the Atlantic Council´s Conference on Trade and National Security, Kerry underscored that the TTIP has the opportunity to be able to provide the economic kick that people need and want, and thereby serve as a strategic pillar of the transatlantic community; it will underscore the democratic solidarity that has defined us and united us since the Berlin Wall was pulled down by the indomitable courage of people on both sides of that barrier”.

Finally, TTIP will reinforce our common effort to counter violent extremism, support the sovereignty of Ukraine, build energy security and independence for many nations in Europe that currently have to rely on one source – Russia, and also it will help us address such global problems, such as nuclear proliferation and climate change. That’s what comes out of this kind of cooperative effort and the growth that it will spur.


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