5.23.2012

On the Benefits of Sneakery

While the benefits of transparency are undoubted and (we are often told) nearly infinite in number, once in a while a good old dose of hush hush can be just what the doctor ordered. One example comes from the European Central Bank's (ECB) recent dealings with Greece. From CNBC:

Overnight, the Financial Times revealed that Greece’s banking system was being propped up by the emergency liquidity, approved secretly by the ECB. The ECB’s weekly statement on banks’ use of emergency liquidity assistance (ELA) showed a spike at the end of last month.

Analysts at Barclays now believe Greece is now using 96 billion euros in ELA, with Ireland accounting for another 41 billion euros and Cyprus 4 billion euros.

If correct, the total ELA in use has exceeded 140 billion euros – more than 10 per cent of the amount lent to euro zone banks in standard monetary policy operations. Such an amount would require the approval of the ECB’s 23-member general council because of the risk of increasing inflation as a result of providing extra liquidity above 50 billion euros.

While it appears that some information, like the weekly statement, has come out (with good results; investors cheered the backing Europe is giving the Greeks) there is still enough cloak and dagger about the situation to be useful to bankers. For example, while there is some information available, a lot of the 'conclusions' floating around in the media this morning are based on analyst speculation. Indeed, 'believe' and 'if correct' are the glaringly operative terms from the CNBC article linked to above.

Meanwhile, the ECB itself hasn't made any definitive statements about just how bad it believes the situation in Greece is currently. Neither have investors or pundits been able to gain insight on whether the vote (that is only assumed to have occurred) to provide support was contentious. Bits of news on either could potentially have had adverse impacts on markets (and the tenuous status of the EU itself) if people didn't like what they heard. At the same time, the ECB could reveal this information in the future if such a move is deemed to be expedient.

The lack of transparency note above was at one time de rigueur in the world of central banks, but it contrasts with the 'tell 'em everything' approach which is often taken by the Fed in the US (at least once Chairman Bernanke took over). While some things are kept close to the vest by Bernanke's board, more often information is shared, even when it is only a forecast.

If prompted, I would probably agree that, in toto, transparency is preferable to the alternative. This is especially true in the case of government affairs. However, once in a while sometimes even those who value information like me can admit that opacity has its place.

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