EUROPE

Spring 2011

by Paul Taylor

It’s hard to know whether media reporting has fanned the flames of the eurozone debt crisis. Paul Taylor of Reuters assesses both the charges and some of evidence

The urge to shoot the messenger has been a recurrent feature of the eurozone debt crisis. Politicians have targeted their ire since Greece’s fiscal turmoil erupted in October 2009 on credit rating agencies, financial markets and, inevitably, the media.

Journalists stand accused of aggravating the crisis by sensationalising the euro’s woes, questioning countries’ creditworthiness, casting doubt on policymakers’ statements and decisions, highlighting differences within EU institutions and among member states, publishing sensitive information meant to remain secret, and spreading rumours or deliberate disinformation.

Most of these accusations boil down to blaming the media for doing its job in a free society. It could be argued that journalists, just like the markets and the ratings agencies, failed to do their job properly during the euro’s first decade by not alerting the public to property bubbles in Spain and Ireland, fiddled statistics in Greece and dwindling economic competitiveness across southern Europe. As long as house prices, stocks and wages were rising, inflation was low and credit was cheap, few were willing to question whether the post-euro boom would end in tears.

Three specific charges about the media’s performance since the crisis erupted are worth more detailed investigation:
• Have some specialist media recklessly published inaccurate or unchecked reports that have aggravated market speculation?
• Is the press in some countries deliberately stoking nationalist prejudices?
• Is some media coverage motivated by a desire to destroy the euro?

The crisis has taken place in a highly competitive, real-time media environment in which policymakers’ every utterance is instantly flashed to the markets and media, provoking immediate reactions and highlighting discrepancies with other newsmakers’ statements or denials. The internet and the proliferation of blogs by economists and non-professional “citizen journalists” have added to the flood of information, of varying quality and veracity. Given the many decisionmaking centres in the euro area, the lack of co-ordination both within and among institutions and the rival ambitions of politicians and policymakers, has meant the prevailing impression is of permanent cacophony.

The media can hardly be blamed for creating this impression, especially when politicians have often for domestic political purposes felt a need to dramatise their descriptions of the crisis. Germany’s Chancellor Angela Merkel, whose words carry the greatest weight in the markets because she leads the biggest economy, has when addressing domestic audiences repeatedly played up the dangers to the euro to justify Berlin’s participation in financial rescues. It is harder to understand what possessed European Council President Herman Van Rompuy to declare in mid-November: “We are in a survival crisis. We all have to work together in order to survive with the eurozone, because if we don’t survive with the eurozone, we will not survive with the European Union.” That arguably did as much to undermine confidence in the single currency as any media error.

But it would be too easy to avoid scrutiny of the media’s role by hiding behind loose-tongued politicians and central bankers. On at least three occasions, loosely-sourced reports in leading newspapers poured fuel on the fire in the financial markets. In two cases, the Financial Times published front-page stories based on anonymous sources that caused an immediate spike in pressured countries’ borrowing costs. The first, in January of last year, alleged that Greece was wooing China to buy €25bn worth of government bonds in a private placement being orchestrated by U.S. investment bank Goldman Sachs, but that China was not biting. The Wall Street Journal published a similar story the same day, yet Greece denied it had ever mandated Goldman Sachs to negotiate any such deal. Reuters established that the U.S. investment bank had held exploratory contacts on a Chinese state investment in Greek sovereign debt without an official mandate from the Greek government. The way the newspaper stories were presented suggested it was Athens that had tried and failed to unload a big chunk of debt on the reluctant Chinese. That helped send the euro to a six-month low against the dollar and the Greek-German bond spread to a euro lifetime high. Greece’s own credibility was seriously affected. Was this a case of the financial media doing its job by flushing out secret, perhaps informal dealings of an increasingly desperate government? Or were the newspapers, for the sake of a “scoop”, manipulated by investment bankers “talking their book” at the expense of the Greek government?

The second such incident raised much the same dilemmas of media manipulation. Two senior German officials, speaking on ground rules that precluded the citing of any source for the information, told journalists in Berlin last June on the day the German coalition agreed its own austerity package that Spain was on the brink of seeking an EU bailout. The officials said the Spanish government would make an announcement concerning the EU’s financial safety net later that day when European finance ministers were meeting in Luxembourg. The sources said they could not rule out that Madrid would apply to use the new emergency loan mechanism. The hints drew flat denials in Madrid, Brussels and Luxembourg, where participants in the finance ministers’ meeting said Spain had made no such request. After making checks, Reuters decided there were no facts to report. Two days later, the Financial Times Deutschland, without quoting any source, reported that the EU was preparing to activate an aid package for Spain in case Madrid requested it. The story sent a new wave of jitters around the markets, pushing Spanish bond spreads over German Bunds to a record high. The Frankfurter Allgemeine Zeitung subsequently quoted a German government source as saying EU states were preparing to help Spain with credit. Spanish and EU officials vehemently denied there were any such discussions and nothing ever came of the reports. But in the vast echo chamber that is the media, the damage was done. Financial news agencies picked up the FT Deutschland and FAZ stories, amplifying their market impact even though they reported the denials.

My own research in Madrid, Berlin and Brussels suggests that some German officials deliberately planted inaccurate rumours in the media, under cover of anonymity, to put pressure on the Spanish government to take additional austerity measures. Reputable German newspapers appear to have been “spun” by individuals within the Berlin government, raising the question of whether the journalists involved bothered to check out the information in Madrid.

The third instance involved a front-page Financial Times story in late May asserting that China had told foreign bankers it was reviewing its eurozone bond holdings because of growing concerns about deficits in countries like Greece and Portugal. The headline “China eyes cut in euro exposure” ran over an anonymously sourced report that representatives of the State Administration of Foreign Exchange, which manages the central bank’s reserves, had expressed concerns to foreign bankers about exposure to the five peripheral eurozone markets of Greece, Ireland, Italy, Portugal and Spain. The FT quoted a single unidentified investor as saying “This is a big strategic shift”. The rest of the quotation was in the conditional tense and suggested the unnamed investor thought that if China were to reduce its eurozone debt holdings, that would be a major shift.

But no such investment shift had occurred. The Chinese institution issued a rare denial of the story, which had hit both the euro and the bonds of the countries named. There is no evidence that Beijing has reduced its exposure to eurozone sovereigns. On the contrary, Chinese leaders pledged on visits to Lisbon, Athens and Madrid that China would buy Portuguese, Greek and Spanish bonds to support their adjustment efforts.

Some commentators have gone as far as to accuse the Financial Times of deliberately fanning panic in the markets with screaming headlines and speculative stories. French journalist Jean Quatremer, on his blog “Coulisses de Bruxelles”, has repeatedly accused the British business daily of sensationalism, “anti-euro bias” and poor ethics. While some FT journalists may share the pervasive British mood of euroscepticism and the City of London’s doubts about the durability of the euro, the broader accusation seems ill-founded. The FT has generally been an exception to the glee in British media at the euro’s troubles, and to the nationalistic tone, that has infected some continental European publications.

Probably the most striking examples have been in Germany’s biggest selling daily Bild, which has repeatedly stoked resentment against weaker eurozone countries that at times bordered on racial or ethnic prejudice.

In an open letter to the Greek Prime Minister, Bild at one point said: “"Here, we work until we're 67-years old... Here, we don't have to pay anyone a 1,000-euro bribe for a hospital bed. And yes, Germany also has high debt, but we can pay it. We wake up early and work hard, because we want to save our money for a rainy day; and because we have companies, whose goods are in demand around the world." Other Bild editorials suggested that the “proud, cheating, profligate Greeks” should be “thrown out of the euro on their ear” or leave the common currency voluntarily for the sake of the other members.

Whether media comment of this sort simply reflects public opinion in Germany, or contributes to building prejudice against the Greeks and other peripheral eurozone members, is open to debate. It has undoubtedly made Angela Merkel‘s task harder in winning political support for loans to Greece and Ireland. But it is far-fetched to argue that the media has gone beyond its legitimate role of challenging public policy and saying out loud what its readers are thinking.