August 16, 2022

News Analysis: In Debt Crisis, E.U. and Markets Stuck in a Dialogue of the Deaf

BRUSSELS — In private, but widely leaked, comments earlier this year, the head of the euro group of finance ministers, Jean-Claude Juncker of Luxembourg, admitted that he sometimes had to lie about market-sensitive discussions.

This week, after the latest emergency talks with colleagues, Mr. Juncker tried a different tactic and kept quiet, canceling a scheduled news conference.

So far neither approach has done much to reassure investors.

As efforts to rescue Greece for a second time come to a frenetic climax, Europe’s politicians and its financial markets seem to be stuck — still — in a dialogue of the deaf.

Accountable to domestic voters, and accustomed to negotiations that start with opening positions from which they later compromise, European ministers have generated a political cacophony, failing to cohere around quick and clear messages to markets.

For its part, the financial sector, which has really never before had to interact with a complex multinational organism like the European Union, has struggled to make sense of its Byzantine and opaque decision-making system.

The talks Tuesday night stalled over the extent to which the private sector should be involved in a new rescue, and diplomats say that a two-stage solution is now under discussion.

That would produce an agreement in principle on a new rescue package in the coming days, to allow the release of the next installment of International Monetary Fund funding from the original bailout, followed by a detailed deal on the new bailout, signed off in July.

The Slovak finance minister, Ivan Miklos, said as much Wednesday — after he was back home in Bratislava. “The new program should be agreed by July 11 at the latest,” he told reporters after a cabinet meeting, according to Reuters.

Though some of the other ministers leaving Tuesday night hinted at that outcome, others stuck to positions that chime with domestic opinion.

“Governments are often speaking to their domestic political audiences or their parliamentary majority or backbench deputies as much as to the markets,” said Thomas Klau, head of the Paris office of the European Council on Foreign Relations and author of a book on the euro.

“The consequence of that is an amplification of division, and it means that the institutions and politicians who speak from the common European perspective often become invisible and see their credibility undermined by the spectacle of European division.”

Though some analysts argue that the divisions voiced are substantial — and that the markets are right to react to them — many diplomats believe that their own E.U. procedures are making matters much worse.

“In the whole process this is one of the big issues,” said one E.U. diplomat close to the negotiations, but not authorized to speak publicly. “Politicians can’t deal with the markets. They react faster than us and then we are left in limbo.”

“The status quo will not continue” added another E.U diplomat. “Either we move forward with more economic integration or we move backward.”

The European method of decision-making appears almost guaranteed to trigger uncertainty.

To sanction another bailout, euro-zone nations need to get political approval back home. But voters in such countries as Germany, the Netherlands, Finland and Austria are increasingly hostile.

Meanwhile, the frequent ministerial meetings give the media and markets a focus point at which expectations of a deal are raised, often only to be dashed.

The current impasse over Germany’s insistence on the role of private investors in the next bailout highlights the difficulties.

The position, made public by the country’s finance minister, Wolfgang Schäuble, would probably mean a greater private sector involvement than that deemed acceptable by the European Central Bank.

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