There’s a point in almost every financial crisis when pretty much anything anybody says about it can take on a ring of truth, because the leaders responsible for dealing with the disaster have squandered their credibility.
That’s where the Greek financial crisis stands now. What’s remarkable is how clearly this comes across simply from reading the government’s press releases, including one last week from Greece’s Ministry of Finance disputing an online article by the German magazine Der Spiegel.
The May 6 article, which said Greece had threatened to drop the euro, was “not only completely untrue but also written with incomprehensible flippancy,” the ministry said. “Such articles are not only provocative but also highly irresponsible as they undermine Greece’s efforts and those of the Eurozone and serve only the interests of speculators.”
Red flags don’t get more glaring than this. Whenever you see an issuer of securities -- be it a sovereign nation or a Wall Street bank -- blame speculators, journalists or rumor- mongerers for its troubles, you know the bosses there are panicking.
The other dead giveaway that the Spiegel story might have been on the mark, at least partly, was that the press release didn’t point to anything specific in the article as inaccurate.
For instance, the first paragraph of the article said euro- area finance ministers and European Commission officials had scheduled a secret meeting for that night in Luxembourg. That same day, a spokesman for Luxembourg Prime Minister Jean-Claude Juncker, who is chairman of the euro area’s council of finance ministers, told reporters for several news outlets that there was no meeting and that this part of the Spiegel story was wrong. Actually such a meeting did occur on May 6. The spokesman, Guy Schuller, later conceded he had lied.
Asked to explain why, Schuller told the Wall Street Journal that “I was told to say there was no meeting,” and that “we had certain necessities to consider.” The euro was falling on the Spiegel report and “there was a very good reason to deny that the meeting was taking place,” he said, namely “self- preservation.” Besides, he said, when Juncker says something to the markets, “nobody seems to believe it.”
So, maybe the purpose of the meeting had been to discuss such a threat by Greece. Spiegel said it got its information from unnamed German government sources. The article quoted at length from what it said was an internal German finance ministry report arguing why it would be a terrible idea for Greece to stop using the euro. Spiegel said German officials planned to bring the paper to the May 6 meeting in Luxembourg.
By the time the confab was held, though, the fact it was being convened was no longer a secret, meaning the parties would have had plenty of time to change their minds about what to talk about. If indeed Greece had made such a threat, that doesn’t seem to have been discussed there. But who knows? Your best guess is no less credible than any of the participants’ most strenuous public denials.
(The website EUobserver, by the way, has a video you can see here of Juncker at a conference last month, where he said it’s necessary sometimes for public officials to lie about financial and economic matters, and that he’s done it before.)
Europeans aren’t special when it comes to telling untruths or creating bogeymen. During the 2008 financial crisis, U.S. Treasury Secretary Hank Paulson and Securities and Exchange Commission Chairman Christopher Cox blamed short sellers, taking a page from Dick Fuld at Lehman Brothers and John Mack at Morgan Stanley. American International Group’s executives blamed mark- to-market accounting rules.
Just last month President Barack Obama and Attorney General Eric Holder promised to investigate oil speculators, as if such things as the Federal Reserve’s easy-money policies or Middle East unrest didn’t adequately explain the recent rise in oil prices. Naturally they showed no outrage over speculators who made a killing this month when oil prices plunged.
As for Greece, where the yield on 10-year government bonds has topped 15 percent, investors are right to believe a debt restructuring is inevitable. This week the word from the finance ministry’s P.R. shop was that it was “not justified” for Standard & Poor’s to cut Greece’s credit rating to B from BB-, when if anything S&P was late with its call, as usual. S&P’s decision, the ministry said, was “based simply on rumors.”
Perhaps someday the world’s leaders will learn it is far more destabilizing for them to make up facts and blame straw men for their own governments’ failings than it is for them to speak candidly and transparently in their communications with the public. We can only hope.
(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)
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