by John Ballard
As a Nouriel Roubini fan I check the weekly newsletter to see if there is anything new. It's like following sports news, the stock market numbers or the weather. If something really important is about to happen (or, as is sometimes the case, it already did and it's too late to duck the flying shit) the rest of the media will let us know. You can tell it's been a slow news day when something like this comes along.
According to Wikipedia, Kabuki is a classical Japanese dance-drama known for the stylization of its plot and for the elaborate make-up worn by the key performers. This definition seems to fit the drama in an interminable number of acts currently being acted out on the European stage by some of the continent's leading central bank players.
It all started last Thursday when, as surely everyone but my blind and deaf uncle must know by now, Mario Draghi made what is widely thought to have been an important speech. We will do whatever it takes, as long as it is in the mandate, he is reported as saying. And since stopping anything which is life threatening to the Euro dead in its tracks forms part of the mandate under any conceivable interpretation, the ECB now have the widest possible brief within which to circumscribe their actions. The only limitation is that it should be enough, just enough, and no more. As Mario Draghi said, "believe me, it will be enough".
But then on Friday dark clouds started to loom on the horizon, as the Bundesbank waded into the fray, making a statement which seems to have been intended to say "now just hold on a minute there!" As the Irish Independent put it in a headline "The Bundesbank Pushes Against ECB's Draghi Attempt To Save The Eurozone.
Yikes! That sounds dangerous. Someone wants to save the Euro, and with it the entire planet, and someone else wants to stop him from doing so. Assuming we are not in James Bond territory here, how can that be?
Well, that's why I say "seem", since digging into the situation a bit, I found it very hard to identify an original source for the statements that were being attributed to that most venerable of German institutions. Certainly there was no trace of anything on the central bank website.
Well, as Ludwig Wittgenstein used to say, when you seem to hit bedrock, and even if the blade is a bit bent, don't let your spade be turned. Just keep on digging. So I did.
What I found was a Reuters correspondent who claimed to have been told by a bank spokesman that "The Bundesbank regards central bank purchases of sovereign debt as monetary financing of governments, from which the ECB is prohibited by European law".
"The mechanism of bond purchases is problematic", the spokesman apparently added, "because it sets the wrong incentives." On the other hand the possibility of the EFSF bailout buying government bonds was reportedly viewed as "less problematic".
But then I moved on to Dow Jones News Wires, where I got the weird feeling their journalist had had exactly the same conversation with just the very same Bundesbank spokesman. "Germany's central bank remains opposed to further government bond purchases by the European Central Bank, but isn't against using the euro-zone's temporary rescue fund doing so to drive down soaring sovereign borrowing costs", the writer claimed to have been told by a Bundesbank spokesman. Odd, I thought that two separate journalists had rung up the bank independently only to have had the exact same conversation.
In order to try and clarify matters - remember markets next week have to decide what the next chapter in the Euro Debt Crisis is going to be, so it isn't simply pedantic to want to get this one right - I did what every well trained economist does in cases of an emergency - I went back to the original story that caught my eye in the Financial Times, where to my horror I found there was no mention of any presumed conversation with any bank spokesman whatsoever. The FT simply informed the world majestically that "The Bundesbank says....." which was followed by a wording not that different to the ones to be found in Reuters and Dow Jones Newswires. Then I went to the Daily Telegraph, and found they followed the FT in simply asserting that the Bundesbank says blah blah blah. But where, I am asking myself, do they say it?
Why does this matter? Well, maybe this IS being pedantic, but I don't think we should start accepting that the Bundesbank (or anyone else) thinks "something or other" simply because the FT says they do, much as I love the paper and its charming corps of staff. Even if we are told "an anonymous source from the Bundesbank who under no circumstances wanted to be identified publically" said x, this can help us evaluate the significance of x. If we are told nothing, then frankly I for one don't know where to start.
Thankfully, Bloomberg finally came to my rescue. They owned up to what had actually happened:
"A spokesman for the Frankfurt-based central bank said in a statement read over the phone earlier today that there haven't been any changes in its position on bond purchases".
So there we have it, a case of sex (or rather policymaking) over the phone. What journalists were presenting us with was an official pre-prepared Bundesbank statement, which was read out to any journalist who was sufficiently interested to ring them up. So this is something the German central bank wanted to go out. It was a way of influencing the situation by applying the law of least effort.
Having understood that (which was the hard part) I have then spent the rest of the weekend wondering what it might mean. But to find out what my conclusions were you'll need to read the full blog post.