LINZ, Austria (MNI) – The program decided on over the weekend to
extend financial aid to Greece if necessary is no gift but rather a
loan, European Central Bank Governing Council member Ewald Nowotny said
Tuesday.

Speaking at a press conference here, Nowotny stressed that “what is
important is to make clear, first, that the primary task of solving this
problem still lies with Greece. The issue is one of correcting long-term
failures there. The Greek government has decided on corresponding
measures and now it’s a matter of energetically and consistently
implementing these measures.”

“In this context it must be noted that the activation of the
program decided on over the weekend” is up to Greece, he pointed out,
and in particular will occur “only when Greece has the feeling that it
is not able to refinance itself on the market under economically
responsible conditions.”

The extension of financial assistance “is not automatic because as
you know, it first has to be initiated by the demand of the Greek
government … So it is not automatic, but it is a mechanism, with a
clear goal of stabilizing the financial situation of Greece.”

It is also important to emphasize that “this assistance program
that we decided on is no gift, but rather a loan,” he continued. As
such, it comes with “two special tasks,” he said.

“The first and most important is that via this possibility, room to
maneuver is provided for structural improvement,” he elaborated. The
Greeks are in effect being given “help to help themselves.”

“That is the philosophy that stands behind all the programs of the
International Monetary Fund,” he reminded. “It is not about being on the
dole eternally.”

Moreover, the conditions of the assistance plan “are specifically
adapted to the conditions of Greece as a member of the Eurozone. That is
they are conditions jointly worked out by the EU Commission and the
Monetary Fund and the European Central Bank.”

The ECB has sent a signal in favor of reducing the dependence on
rating agencies, he added. “The fate of Greece should not be in the
hands” of a rating agency, he said.

Asked about Greece’s uneasy status on capital markets, Nowotny said
he expected the Greek government to take initiatives to improve its
position. “We will see how that develops,” he said. “In any case, Greece
is in a stronger position” than it had been, given the recent decision.

Nowotny declined to say exactly how Greece should proceed to
attempt to calm capital markets, saying that this “is a decision of the
Greek government where I would not like to give any recommendation.”

Greece will not have the option of approaching one party to the
agreement or another if it decides to request assistance, he said, “but
rather there is only one contact partner … the contact partner is
always a joint working group between the EU Commission, the IMF and the
ECB.”

On exchange rates, Nowotny observed that “these are developments
that are determined by the markets … what we are seeing is that the
euro in the 10 years of its existence has assumed an important role in
the global economy.”

“With reference to currency reserves it is now number two,” he
continued. “However, from the point of view of the European Central
Bank, that is not something that we are actively striving for,” being
charged instead with ensuring price stability.

Nowotny said he can “completely exclude” political pressure on
European monetary authorities to allow higher inflation, saying that
there can be “no question of political influence” exerted on the
Governing Council.

“The European Central Bank is an independent central bank and it is
probably the most independent central bank of the world,” given the U.S.
Federal Reserve can conceivably be threatened with a change of relevant
law, he argued.

“The independence of the ECB is more ensured than with any other
central bank and the European Central Bank has a very clear task, namely
price stability,” he said.

“I warn against discussions such as emerged in the USA” on the
subject of tolerating higher inflation rates, he said. The ECB has
succeeded in anchoring long-term inflation expectations and this
anchoring cannot be put at risk, he said.

Turning to the recent modification of the ECB’s collateral
framework, Nowotny explained that “we have decided that we will have a
more flexible approach vis-a-vis the rating demands that we have with
regard to collateral, and we will now introduce — but as a general
measure, not as a measure with regard to Greece — a system of haircuts
so that we have a whole range how to react to different quality of
collateral and so as to avoid these ‘cliff’ effects.”

–Frankfurt bureau tel.: +49-69 720142. Email: dbarwick@marketnews.com

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