VIENNA (MNI) – The European Central Bank must watch the evolution
of the economy closely in determining what its y future interest rate
policy will be, Governing Council member Ewald Nowotny said Monday.

Asked after a press briefing on the margins of a conference of the
Austrian National Bank (which he heads) if the ECB could conceivably cut
interest rates another notch, Nowotny said, “Anything is naturally
conceivable, both up and down, but in the situation we are seeing now,
where we are seeing a clear deterioration of economic expectations, we
reacted at the last Governing Council meeting of the ECB with a rate
cut.”

He added: “In the future we will naturally have to look closely at
how the economic situation develops further.”

While declining to say whether the ECB would have to continue
buying Spanish bonds after corresponding interest rates fell in reaction
to the weekend’s elections in Spain, Nowotny said that “one should first
of all see the positive about this, that there is a positive assessment
by the markets” of the election outcome. He noted, however, that things
can change “very quickly.”

As to demands that the ECB help counter the crisis by printing
money to buy bonds of troubled member states, Nowotny said that he was
“naturally” opposed to such a solution.

“What we certainly do have to discuss is what the role of the ECB
is in these difficult times, but that too is something that we will
discuss in Frankfurt in due time,” he said.

Asked whether steps towards more budgetary discipline in Europe
could be a basis for joint debt financing such as Eurobonds, Nowotny
replied that fiscal discipline “is necessary in any case in and of
itself, because we have to look at it realistically: we have a really
severe crisis of the financial sector in Europe that is essentially
stemming now from public budgets.”

Possible additional measures “would be another step,” he said. “But
the first step, we have to take in any case.”

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

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