VIENNA (MNI) – Growth in the Eurozone is set to weaken further,
European Central Bank Governing Council member Ewald Nowotny said
Tuesday, pointing to the bleak economic growth outlook for Southern
Europe as a drag on the 17-member currency area’s performance.

“The Eurozone is without a doubt the weakest point of the global
economy at the moment. The markets see the low growth here as a large
weakness, and unfortunately the upcoming data will show that growth is
slowing further,” Nowotny said. He called the economic situation in the
southern Eurozone states “dramatic.”

“Practically all states in Southern Europe will produce negative
growth rates in 2012. In France, we might see stagnation. In the other
states the negative growth will be significant,” Nowotny said. “This
will, I fear, continue in 2013.”

The sovereign debt crisis, which eclipsed all other Eurozone issues
earlier this year, still poses a serious threat to economic recovery and
stability, but with the recent stabilization of sovereign debt spreads,
the worst has been overcome, Nowotny said. He attributing this to two
main factors: ECB President Mario Draghi’s pledge to do what it takes to
defend the euro and the ECB’s OMT program.

“We assured an improved trust in the euro, and with that we stopped
an unfortunate and dangerous process,” Nowotny said, adding that
European sovereign debt spreads still remain too high.

“Markets have been over-shooting debt rates, and as far as I’m
concerned they may still be over-shooting,” he said.

However, Nowotny, who heads the Austrian National Bank, said the
large variation in state debt rates across the Eurozone does not concern

“The aim of the OMT program is to remove the element of the rates
that stem from the risk of a Eurozone breakup; it’s not to ensure that
rates are on a level across the euro area,” he said.

Nowotny cautioned European politicians to tackle the concrete and
current macroeconomic challenges head on, rather than get stuck on the
long-term political architecture of the euro area.

“I strongly warn politicians against making the discussion of a
political union a question of the entire fate of the Eurozone,” he said.

He expressed concern over the deterioration of the strong political
unity between Germany and France.

“Historically, Europe showed better and solidly anchored dynamics
when there was a German-French axis in place. I find it worrying that we
don’t see this unity at the moment,” Nowotny said.

–Frankfurt bureau tel: +49-69-720-142. Email:

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