Clunky but clear, ECB-speak is getting the message across

[Harold Schiffman]

Clunky but clear, ECB-speak is getting the message across von Ralph Atkins
(Frankfurt) Europe's central bank interacts in 21 languages but it is
communicating better than the Bank of England or the Fed." There's no art to
find the mind's construction in the face.'' Shakespeare, Macbeth Act 1,
Scene 4

Communicating to the world about the outlook for the economy and possible
movements in interest rates is a core task of a central bank. But, like
English playwrights, some are easier to understand than others. Currently,
the European Central Bank is going though a period of exceptional clarity.
Earlier this year, Jean-Claude Trichet, president, committed the ECB to
"strong vigilance'' - a phrase financial markets know means that a
quarter-percentage point rise in interest rates is one month away. Everyone
knows that the ECB sees growth in the 13-country eurozone as robust,
but inflationary
dangers lurking over the longer term.

Such predictability contrasts with the picture on the other side of the
Atlantic, where financial markets have taken issue with the US Federal
Reserve's economic outlook. And across the Channel, Mervyn King, governor of
the Bank of England, told the Financial Times this year that the UK central
bank was "clearly" failing to explain properly how it was likely to respond
to economic data. His comments followed erratic financial market movements
as investors struggled to understand Bank of England thinking. "By
comparison, the ECB is a model of predictability," says Ken Wattret,
eurozone economist at BNP Paribas in London. Benign economic circumstances,
such as the eurozone is currently witnessing, make a central banker's life
easier. Still, for the ECB to win plaudits for its communication - thus
arguably increasing its effectiveness by shaping expectations about
future borrowing
costs - would have seemed unlikely even relatively recently. English is the
central bank's working language in Frankfurt but it interacts in 21 European
Union languages, which logically would increase its difficulties. Of the
governing council's 19 members, only one has English as his mother tongue -
John Hurley, Ireland's central bank governor, who is sometimes referred to
as the Shakespeare of the ECB because of his fluency in the language
(though, as an Irishman, he may not regard that as a compliment).

In its early years under the presidency of the late Wim Duisenberg, the bank
was often criticised for a sometimes haphazard communication style. Even now
its English is not for the prose stylist. When, last October, the ECB wanted
to say that if it was right about the economic outlook interest rates would
rise further, it did not say as much. Instead, Mr Trichet remarked that, "if
our assumptions and base-line scenario are confirmed, it will remain
warranted to further withdraw monetary accommodation". Other central bankers
mock the crudeness of its "traffic light" code-word system for signalling
interest rate increases, including the use of "strong vigilance". But the
English used by native-speaking central banks is often clunky as well. And
from the ECB's point of view, its communication strategy is effective. In
its own - ungainly - words, one bulletin concluded: "Through the flexible
use of implicit forward language in its regular economic and monetary
assessment, the ECB has managed to give implicit guidance on its
inclinations over very short horizons, while avoiding any kind of
pre-commitment with regard to future policy decisions and enhancing
financial market participants' understanding of the ECB's broad policy
direction."

What is the secret of its linguistic success? Michal Krzyzanowski of the
University of Lancaster in the UK, who studies the use of language by
European Union institutions, says communication difficulties have in recent
years created angst about political legitimacy at organisations such as the
Brussels-based European Commission. "They rightly felt that the democratic
deficit was the result of a deficiency in communication". But the
Frankfurt-based ECB differs, he argues, because its tasks are clearer-cut
and narrower. It had concentrated on "being a central bank, rather than a
European institution as such". Since taking over as president in 2003, Mr
Trichet has exercised tight control over the ECB's communication strategy.
He has also reinforced the principle of consensus-driven decision-making.
Rather than offering differing individual views, ECB governing council
members have become adept at talking from near-identical scripts, and at the
use of BlackBerry communication to quickly correct any messages that appear
slightly off-beam.

Julian Callow, economist at Barclays Capital, adds that the way the ECB uses
English also helps improve clarity. Compared with the scope that the Bank of
Japan has when using its native language, the ECB has less room for nuance,
he says. More importantly, the fact that ECB texts have to be translated
into so many other languages increases the demand for clarity. "You have
this bureaucratic English, which can compel the ECB to state matters in a
more black-and-white way," says Mr Callow. But the main factor working to
the ECB's advantage may simply be that the eurozone economy is at a stage
where trends are relatively clear - and implications for interest rates are
relatively straightforward. The region is enjoying a "Goldilocks" recovery -
not too hot, not too cold - with growth around a rate that would be
sustainable without creating excessive inflationary pressures. With credit
and money supply figures highlighting the effects of interest rates that are
still low by historic standards, at least one further rise seems obvious.

The real communication difficulties may come - as the US Fed has found -
when interest rates have reached a level that might represent a peak, and it
becomes less obvious where they may move next. Throw in exchange rate
uncertainty and possible hiccups elsewhere in the world economy, and the ECB
might find it harder to be predictable.
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