When it was time for the monetary policy meeting, sufficient information was assumed to have been released “by degrees” with regard to how the Executive Board as a whole were reasoning so that the economic agents would not be surprised by the interest rate decision taken at the meeting. But with the broader definition of signalling – when we in some way communicate what we are intending to do with the repo rate – the publication of our own repo rate forecast of  4  BIS Review 106/2007  course also becomes part of the signalling. At intervals of two months, the general public and the financial markets now receive a detailed description of how a majority of the Executive Board consider that the interest rate should be set in the future. It is thus evident that the need for “signalling by degrees” in speeches between the monetary policy meetings has declined significantly. It was also the most important reason why we earlier this year decided that there would not normally be reason to indicate in speeches and press releases how the repo rate would be set at the next meeting. But there were also some problems with the earlier signalling that lay behind the decision. In certain situations it was probably difficult to determine whether the signal being sent in a speech should be interpreted as an individual member’s opinion or whether it reflected the views of a majority on the Executive Board.
If there is an institutional framework that is credible from the start, it will not need to be used in most cases. It is to some extent this type of framework that the European Financial Stability Facility, EFSF, is meant to become. It will be able to buy government securities issued by euro area countries. However, it is difficult to restore market confidence when it is already seriously damaged. The institutional framework must be in place and have credibility before the crisis breaks out. This makes the crisis easier to manage and one might even prevent it arising at all. It is probably the case here that politicians in the EU have helped increase market distrust because of the way they have handled the crisis. For example, it is understandable from a political point of view that they have wanted to force private lenders to write off their loans to Greece. But from an economic perspective – and in the longer run also political – this is not such a good idea. This has meant that Italy and Spain have had to pay much higher interest rates than before – not primarily because one perceives a risk that Italy and Spain will be unable to service their debts, but because the market has become uncertain as to whether the politicians intend to take similar coercive measures here. If one suffers an acute crisis, whether one has created it oneself or not, one must consider carefully how it should be managed.