LISBON (MNI) – Portugal’s banks must reduce their dependence on
refinancing from the European Central Bank, ECB Governing Council member
Carlos Da Silva Costa said here Monday.

Addressing a conference of financial officials and bankers from
Portuguese speaking countries, Costa, the Bank of Portugal governor,
also lauded the “extensive” austerity measures announced last week by
the Portuguese government as “an important step in making the budget
consolidation strategy announced in May credible.”

With regard to the global economy, he echoed the comments of his
ECB colleagues, saying, “the current recovery that is underway is
fragile and uneven.”

Addressing banks’ over-reliance on ECB funding — an issue that has
become a key concern for the Governing Council — Costa said,
“Portuguese banks and the Portuguese economy need to have access to
alternative sources of financing to reduce their dependency on the
Eurosystem conceding liquidity.”

In this regard, the impact on Portugal of the ECB’s inevitable
normalization of monetary policy “will crucially depend on the way
external perception of Portuguese sovereign risk evolves. And this
evolution critically depends on the consolidation of national public
finances,” he said.

Indeed, for Costa, everything passes through fiscal consolidation.
“The main national priority is the strengthening of the sustainability
of the public finances,” he said.

“The earlier and more credible the strengthening of the [fiscal]
consolidation, the less the impact will be from the sovereign crisis in
the banking sector, and in financing productive activity,” he added.

“As the consolidation of public finances is an inevitable
imperative, it is important to know that the costs this implies will
depend on the moment and on the credibility of its implementation.”

After slashing the budget, the next priority for Portugal is to
increase private savings, particularly in the non-financial sector,
Costa said. Other national priorities include effective allocation of
resources and investment to maximize growth and employment, and
strengthening the stability of the Portuguese financial system,” he
added.

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