VIENNA (MNI) – Fiscal consolidation plans around Europe will not
trigger a double-dip recession, European Central Bank Governing Council
member Ewald Nowotny said Tuesday.

Speaking to journalists on the margins of a conference sponsored by
the Austrian National Bank, which he heads, Nowotny said exports could
counter the negative short-term economic impact of austerity programs
while structural aspects of the plans would not hurt growth at all.

Nowotny also suggested that the slower pace of ECB government bond
purchases in the past week may be a sign of stabilizing markets.

Asked if austerity measures would lead to a double-dip slump,
Nowotny replied, “no, I do not foresee that.”

“These measures to reduce budgetary deficits have to be seen in a
larger context,” he continued. “So if they’re done with regard to
structural adjustments, they may have no negative effects on economic
growth. And the short-term effects…could be compensated by increased
export activities.”

Nowotny implied there is no truth to rumors that France is
benefitting disproportionately from bond-buying. “The ECB never does
anything with regard to specific countries,” he said. “What we are doing
with regard to this bond program is a matter of stabilizing European
bond markets, so it has nothing to do with specific country effects.”

Declining to give any details on purchases beyond the main numbers
the ECB already provides weekly, Nowotny said that while market details
must be examined to determine the full implications of the successively
smaller volume of bonds bought, “at first sight I would interpret this
as a stabilization of markets.”

Whether purchases will continue at a similar pace “depends on
market developments,” he said. The program does not have a “quantitative
goal,” but rather is intended simply to improve market functioning, he
asserted.

Nowotny said the downgrade of Spain’s sovereign debt rating by
Fitch last week was “a decision that is very difficult to understand.”
He added: “Whatever adds to a certain volatility in the market is not
helpful.”

“But we have to live with the markets as they are and try to act to
correct markets where we consider them as not fully functioning,” he
said.

The ECB has entered its exit phase but is proceeding “in a careful
way so as not to disrupt markets,” Nowotny said. The bank has “foreseen
a number of measures” so that the expiry in a month of a E442 billion
one-year tender “will not have negative effects.”

Asked if the ECB would consider reintroducing a 12-month tender, he
replied, “I don’t see a need for that at this time. Basically…we have
entered an exit phase. Of course we have to react to specific market
developments if they arise. But basically I think…to the extent
markets are stabilizing we also can follow up with the exit strategy.”

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

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