FRANKFURT (MNI) – European Central Bank Governing Council member
Ewald Nowotny said Monday he does not expect Spain and Portugal to line
up for financial aid from the European Union even if Ireland chooses to
do so.

Ireland itself should try to avoid restructuring its debt, the head
of the Austrian National Bank said in a radio interview with Austrian
public broadcaster ORF.

“An entire country does not go bankrupt,” Nowotny noted. While debt
restructuring has occurred in the past, “we want to avoid that” for
Ireland.

Asked if he expected Spain and Portugal to follow Ireland, were the
embattled former Celtic Tiger to seek assistance from the EU, Nowotny
responded, “No, I do not expect that.”

“That is exactly the reason why the European Community now wants to
reach a quick and good solution” to the Irish situation, “so that there
is no contagion effect,” he said.

“I am not involved in the direct political processes” surrounding
whether or not Ireland will soon accept assistance from the EU, Nowotny
pointed out.

“All I can say is that from the viewpoint of the European Central
Bank and, thus, from the point of view of the reserve banks, we hope
that a clear answer comes as fast as possible that can then calm markets
as well and give a clear outlook for Ireland and the other states of
Europe,” he said.

Ireland has increasingly come under scrutiny from bond investors as
doubts grow as to whether it can repay its sovereign obligations. As a
result of various bank rescues, its deficit ratio is expected to hit 32%
of GDP this year, more than ten times the limit allowed under the EU’s
Stability Pact.

Ireland’s bond spreads versus the German 10-year Bund narrowed by
18 points today on intensified talk that some form of a bailout for the
troubled country will be agreed soon. Irish yields are now +545 bps
above Germany’s, down over 100 points from last Thursday’s record high.

Spreads have also come down in other peripheral countries at risk.
Portuguese and Spanish yields narrowed by 5 bps today to +418 bps and
+189 bps, respectively.

–Frankfurt newsroom +49 69 72 01 42; Email: frankfurt@marketnews.com

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