NEW HAVEN, Connecticut (MNI) – Following are quotes taken from a
presentation and question-and-answer session conducted on Monday evening
at Yale University by European Central Bank Governing Council member and
Austrian National Bank Governor Ewald Nowotny:

International Exchange Rate Policy:

— As to whether industrialized nations should return to a more
coordinated foreign exchange regime: “Yes, I think it would make sense
if this means that we could avoid abrupt changes in exchange rate
relationships. I think that there are ongoing talks both within the IMF
and in the G-20 and I’m quite optimistic that there will be no .. severe
disruptive developments.”

— “The way how I see it is that there have been fruitful talks in
Washington, that the whole idea of a currency war is rather absurd to
me. What we do see is, of course, that we have different developments.
There is merit in having some coordination and I think that the
Washington meeting was one occasion for this kind of coordination. Of
course this doesn’t mean that you can solve problems in two days.”

— The word ‘coordination’ means “having an exchange of views
between the different economic partners and understanding each others’
position and needs.” It does not mean coordinated action: “I also don’t
see a need for, let’s say, a strong institutionalized approach. I think
this is something that will come out of discussions both at the IMF
level and at the G-20 level.”

ECB Policy, the Euro Exchange Rate, And Eurozone Economy:

— “The collateral policy of the ECB is always a general policy and
this is something that is in permanent evolution, but we don’t have any
specific plans for general changes.”

— Whether the stronger euro is a risk to growth, particularly in
the periphery countries, “depends first on the amount of differences in
the exchange rates and on the time perspective. As we have seen in the
past, these developments can be very volatile, so it’s very difficult to
make a forecast in that respect.”

— “We see that inflation expectations are very well founded and
are not volatile for the time being, so we see neither a danger of
inflation nor a danger of deflation for the Eurozone.”

— “I cannot comment on specific” exchange rate levels; “I want to
echo what President Trichet said, that we see merit in having stable
developments and no abrupt developments, but that we do not comment on
specific exchange rates.”

— As to whether there is the political will in the larger Eurozone
countries to support the periphery countries: “What we have is that
there is a structure that has been agreed between Greece and, on the
other hand, the ECB, the EU Commission and the IMF. This program is
working and I think it is working in a sufficient way. And this is the
basis for our decisions in this case.”

— “Now we have started what we call an exit strategy. So we are of
course in a cautious exit strategy … but we always, even now, take
care that we have operations with full allotment … The situation on
the money market has stabilized but we still need this ‘safety belt’ of
at least one operation where banks can” borrow as much liquidity as they
need.

— “Both for the U.S. and for the Eurozone, I do not see any
perspective of inflation … for the U.S. it’s rather deflation.”

— “The situation of very low interest rates … is not an
equilibrium.”

— “It is quite clear that our main priority has to be securing
price stability.”

— “The ECB would never tolerate an inflation that would mean”
raising our price stability threshold. The ECB’s price stability
definition of holding the annual harmonized CPI rate below but close to
2% “is our guideline and we will not accept more.”

— “As soon as you have destabilized expectations, you really don’t
know what will be the next steps … It will be costly to stabilize
expectations then.”

— “One must not mix up two things. There are a number of countries
that do have problems” in the Eurozone, “but the euro is a currency …
and does not depend on the troubles of single states, but on whether it
is able to fulfill the functions of a currency” as a means of payment
and a store of value. “As the euro is the most stable currency of all
the major currencies, it is a perfect store of value.”

— “Reducing the public debt will take some time. It’s not
something that will come overnight.”

— “The main problem from the perspective of the European Central
Bank is that we have substantial divergences within the Eurozone. [In
2011] we foresee that these divergences will grow smaller. … This does
not mean that underlying factors have been improved. [Structural reforms
are needed] for longer-lasting improvement.”

— “If a central bank wants to have a positive impulse on the
economy in the U.S., it is quite possible … via the capital markets.
In Europe … the most important part is to help banks.”

— Swollen central bank balance sheets in the U.S. and Europe
“reflect something that I would say neither in theory nor in practice
anyone ever expected to have: a total breakdown of the money markets
following the Lehman crisis.”

— In Central, Eastern and Southeastern Europe “we do have a
certain problem there still, especially in the Ukraine … but basically
the area is not a problem spot anymore.”

— Looking at latest IMF projections for global growth, “you see
that growth has increased, but still is quite low, especially for the
euro area in historical perspective, and is of course very high in the
Asian countries.”

— “We see that Asia has much higher growth rates, but this is not
a threat … just a natural catching-up process.”

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

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