The Wall Street Journal - USA (2020-12-02)

A8| Wednesday, December 2, 2020 THE WALL STREET JOURNAL.

WORLD NEWS

The North Atlantic Treaty

Organization should devote

much more of its time and re-

sources to security threats

posed by China even while

seeking to deter Russian ag-

gression, a high-level assess-

ment of the alliance’s future

says in a report.

The study commissioned by

NATO Secretary-General Jens

Stoltenberg followed criticism

last year by French President

Emmanuel Macron that the al-

liance was experiencing “brain

death” because of difficulties

coordinating among its 30

members and uneven U.S.

leadership. President-elect Joe

Biden has vowed to strengthen

ties with NATO and U.S. allies.

“The really big message is

that NATO has to adapt itself

for an era of great power com-

petition that includes not only

Russia, but also China,” said

A. Wess Mitchell, who served

as the top State Department

official for Europe from 2017

to 2019 and co-chaired the

group that wrote the 67-page

report.

The report will be dis-

cussed by NATO foreign minis-

ters, who are convening Tues-

day and Wednesday by

videoconference and will for

the first time address the rise

of China with colleagues from

non-NATO member countries.

“China does not share our

values,” Mr. Stoltenberg told

reporters Monday. “It does not

respect fundamental human

rights and tries to intimidate

other countries.”

A Chinese Embassy spokes-

man said: “We hope NATO will

have a correct view of China,

look at China’s development

and domestic and foreign poli-

cies in a rational manner.”

BYMICHAELR.GORDON

ANDJAMESMARSON

NATO

Should

Focus on

China, Says

Report

vestment Management Co., and

banks such as Citigroup Inc.

Deutsche Bank AG, Goldman

Sachs Group Inc., JPMorgan

Chase & Co. and UBS Group AG.

The calls lasted 10 or 15

minutes, according to people

who received them. Mr. Lane

took questions on the ECB’s

policy decisions and economic

forecasts, but spent most of

the time listening, they said.

He clarified and fine-tuned the

ECB’s message, and answered

technical questions. Some of

the people said they don’t re-

call that Mr. Lane divulged

much new information. At

least one other ECB staff

member was on the calls too.

“It would be desirable for all

players to have access to rele-

vant information at the same

time. Otherwise, it’s not a level

playing field,” said Stefan Ger-

lach, former deputy governor

of Ireland’s central bank.

An AXA spokesman said Mr.

Lane had spoken to the com-

pany’s chief economist following

the ECB’s news conferences this

year, saying the conversations

gave the group a chance to “di-

gest the ECB’s announcements

and ask any of the more techni-

cal questions we may have.”

€1.35 trillion in June. Yields

have since declined for all Eu-

ropean government bonds.

Bond values rise when yields

fall and this has meant that

owning European government

debt has been profitable for

investors this year.

Mr. Lane’s interventions,

along with a change in Ms.

Lagarde’s own communications,

have helped swing market senti-

ment behind the ECB. Yields on

10-year bonds from Italy and

Spain have fallen to record lows.

On Sept. 10, Ms. Lagarde

again jolted financial markets

by sounding optimistic about

the eurozone’s economy de-

spite a fresh surge in coronavi-

rus infections. The euro rose

against other major currencies,

approaching a two-year high

against the dollar, before re-

treating later in the afternoon.

That same day, Mr. Lane called

eight major European and U.S.

banks to discuss the economic

outlook and monetary policy,

according to his diary.

In a blog post the following

day, Mr. Lane sounded a cau-

tious note on Europe’s eco-

nomic recovery, saying there

was “no room for compla-

cency” and leaving the door

open for fresh stimulus. ECB

officials have since signaled

they will scale up their mone-

tary stimulus at their next pol-

icy meeting on Dec. 10.

The calls underscore Mr.

Lane’s growing influence

within the ECB. The 51-year-

old Harvard-trained economist

joined the bank’s six-member

executive board in June 2019.

He is considered a so-called

dove on the ECB’s rate-setting

committee, meaning he wor-

ries more about unemploy-

ment than inflation.

Before March 12, Mr. Lane

had never communicated with

banks or investors on the days

of ECB policy decisions, ac-

cording to his public diary. Nei-

ther Ms. Lagarde nor the ECB’s

other four executive-board

members have spoken to banks

or investors on policy decision

days this year or last, accord-

ing to their public diaries.

Since her March news con-

ference, Ms. Lagarde has held

closely to the ECB’s written

policy message, saying in June

that she wanted to be “very,

very specific” in her communi-

cations.

ter policy meetings—when Mr.
Draghi was preparing to hand
over the reins to Ms.
Lagarde—but only began them
in March. The briefings were
set up shortly before Ms.
Lagarde’s news conference on
March 12, the spokesman said.
“In line with our transpar-
ency policies, we publish the
names of the institutions
where they work and ensure
there is a rotation between in-
stitutions,” the spokesman
said. “The purpose is to hear
the views of economists who
are ECB watchers and address
any technical questions. The
calls only touch on public in-
formation and their only focus
is on the policy decision pub-
lished beforehand.”
To get on Mr. Lane’s call
list, the institution had to be a
close follower of ECB policy,
the spokesman said.
The spokesman said Ms.
Lagarde declined to comment.
ECB policy makers observe
a quiet period for seven days
before policy meetings, during
which they are asked to re-
frain from commenting on
monetary policy.
In the U.S., the Federal Re-
serve has a blackout period of
12 days that runs until a full
day after policy meetings, dur-
ing which Fed officials don’t
speak publicly or privately to
investors. Fed officials meet
with banks and asset managers
to discuss market sentiment,
but the meetings take place
outside the blackout period and
involve officials asking ques-
tions. The Bank of England
briefs analysts shortly after its
policy decisions, but all analysts
are briefed at the same time
and any who want to can join.
On each occasion, Mr. Lane
discussed the ECB’s recent deci-
sion with officials—often the
chief economist—at a subgroup
of 18 institutions, according to
his public diary. They included
investors such as AXA SA,
BlackRock Inc. and Pacific In-

Continued from Page One

ECB Calls

Broke With

Practice

conference by saying the ECB

was “not here to close spreads,”

or narrow the differences in

borrowing costs between

wealthy Germany and weaker

governments like Italy’s.

Italy’s huge debt makes it

vulnerable to a rise in borrow-

ing costs and a concern for the

integrity of the entire cur-

rency union.

Ms. Lagarde’s comments,

which suggested that the ECB

wouldn’t support governments

such as Italy’s if they came un-

der pressure in debt markets,

helped prompt a surge in the

country’s borrowing costs and a

17% fall in its stock market. Ms.

Lagarde gave a TV interview

shortly after her news confer-

ence to rebalance the message.

That same day, Mr. Lane

held teleconferences with 11

banks and investors including

BlackRock, JPMorgan and Uni-

Credit. In a blog posted on the

ECB’s website the following

morning, Mr. Lane signaled

that the bank was indeed

ready to buy Italian govern-

ment bonds if necessary.

Six days later, the ECB un-

veiled a €750 billion, equiva-

lent to $894 billion, bond-buy-

ing program, scaling it up to

Christine Lagarde didn’t speak to banks or investors on ECB policy-decision days in 2019 or 2020.

OLIVIER HOSLET/EPA/SHUTTERSTOCK

Citi, Deutsche Bank, Gold-

man Sachs, JPMorgan, Pimco

and UniCredit declined to

comment. BlackRock and UBS

didn’t respond.

In the world of central bank-

ing, small changes in emphasis

from a top official can have a

big impact on a range of asset

prices, allowing them to stimu-

late or slow the entire economy.

Ms. Lagarde, a former In-

ternational Monetary Fund

managing director and French

finance minister, hadn’t

worked in a central bank until

she took the helm at the ECB

in November last year.

Her communications were

especially vital this year. On

March 12, as the pandemic hit

Europe and the borrowing costs

of Southern European govern-

ments surged, Ms. Lagarde

stunned investors at her news

ECB chief

economist

Philip Lane

clarified and

fine-tuned the

bank’s message

in his calls.

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