HELSINKI (MNI) – There is a considerable chance that the negative
economic and financial dynamics in the Eurozone will continue, though
things could also turn out better than expected, the Bank of Finland and
its governor, Erkki Liikanen, said Wednesday.

“There is a substantial risk that the unfavourable spiral in the
euro area will continue, with recovery being even slower than forecast,”
the Bank of Finland said in a statement accompanying a press conference
by Liikanen on monetary policy and the global economy.

Elaborating on the risk, the central bank noted that the economies
of crisis countries could be weaker than expected, and there could be
renewed doubts about the effectiveness of policy measures, possibly
matched by increased capital flight.

But despite Europe’s economic fragility, “better-than-forecast
developments are still possible,” the bank quoted Liikanen as saying.
“If Europe is able to build a credible crisis strategy, market
confidence may strengthen faster than assumed, which would halt the
flight of capital and reduce financing costs for financial stressed
countries.”

Still, the Bank of Finland noted a deterioration in the global
economic outlook as caused “adverse effects on the management of the
sovereign debt crisis.”

Liikanen cautioned that the reforms in Europe needed to surmount
the crisis are only just beginning, and “based on previous experience
from financial crises, there may be several more years to go.”

Due primarily to events in Europe, risks to the global economic
recovery are “weighted to the downside,” and that “will make recovery
even slower than forecast,” the Bank of Finland statement said.

Liikanen also reiterated comments by some of his ECB Governing
Council colleagues to the effect that the new OMT bond buying program
unveiled last Thursday was aimed at safeguarding monetary policy
transmission and the “singleness” of monetary policy, “without changing
the division of responsibilities between member states and the ECB.” He
stressed, as has ECB President Mario Draghi, that the OMT program is in
line with the bank’s price stability mandate.

“It is important to emphasize,” Liikanen added, “that as a monetary
policy measure, the OMT will be applied in equal terms to all euro area
countries.” He later elaborated that all countries wishing to benefit
from the OMT bond buys must apply for an aid plan with the same rules.
“There are no country-specific actions.”

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