— Economically Speaking, One Could Recommend That Portugal Seek Aid

VIENNA (MNI) – There is a risk that Greece may ultimately be unable
to pay its debts, but the answer won’t be known for a few years,
European Central Bank Governing Council member Ewald Nowotny said in a
television interview Sunday.

Nowotny also said that in economic terms it was probably to be
recommended that Portugal seek aid from the European Financial Stability
Facility (EFSF), but he conceded that the current political situation in
Lisbon could make that a complicated proposition.

Asked by Austria’s public television station ORF2 whether he
thought Greece would pay off its debts on its own, Nowotny replied:
“That is a question that will be answered first in three or four years.
In the meantime there is the rescue system.”

He added that if growth improved in all of Europe, as well as
abroad, than Greece would have “a good chance” to pay back its debt.

However, “a certain amount of risk, to be honest, is present,” he
continued. “The markets see it this way as well because the rates [that
Athens must pay on its debt] are appropriately high…We are assuming
that Greece will succeed. But of course we know…that there is a risk.”

Nowotny, who heads the Austrian National Bank, observed that the
domestic political situation in Portugal had “significantly worsened,”
and that the country “definitely has a competitiveness problem.” While
the deficit-cutting measures implemented by Lisbon are “impressive,” the
country must raise about E11.5 billion in the capital markets between
now and June, he noted.

“We’ll see if that happens at a reasonable … interest rate.”

Asked if he agreed with the E75 billion figure mentioned last week
by Eurogroup Chairman Jean-Claude Juncker as the amount Portugal would
need in aid, Nowotny said “it is not an unrealistic amount.” It is, he
said, what would be needed “purely from the statistics.” But other
factors, including economic developments and bank ratings, must also be
taken into account.

However, following the collapse last week of Portugal’s minority
Socialist government and likely elections to be held sometime in spring,
it could be difficult for Portugal to negotiate an aid package, the
Austrian central bank chief noted. “Sustainable reforms can only be
carried out when there is a stable governmental constellation. That is
unfortunately not the case in Portugal,” he said.

Nowotny made clear that ECB interest rates will be going up, as has
been clearly signaled by the central bank. But he was non-committal
about whether the first step would come at its April meeting in ten
days’ time.

“Central bankers can’t commit in advance, but in principle [the ECB
is moving] in the direction of [monetary policy] normalization,” he
said.

“We must as central bankers carefully watch economic developments.
That’s why there is the famous phrase from Trichet ‘we do not
pre-commit,'” Nowotny said. “We can’t pre-commit. Because as we saw with
Japan there can always be new developments. We are analyzing what this,
for example, means for the European economy.” But he then added: “My
personal view is that nothing would change our original goal of moving
towards normalization.”

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