VIENNA (MNI) – The European Central Bank believes it has done
enough for now to counter the Eurozone crisis and will wait to assess
the full effect of its 3-year refinancing operations before deciding
whether to take any additional measures, ECB Governing Council member
Ewald Nowotny said Friday.

I think that the general mood on the ECB [Governing] Council is
that we have taken important measures and we will now wait to assess the
impact of these measures,” Nowotny, who heads the Austrian National
Bank, said at a press conference here. “And I personally don’t see
further need for action at the moment.”

At the same time, Nowotny warned that “you have to be very careful
about assuming that the worst is over. You always have to keep an eye on
developments, such as the challenges regarding state refinancing.” But,
he added, “I don’t think it would be good to announce several other
measures at the moment.”

Nowotny’s comments are consistent with those of other ECB
officials, who have seemed to downplay the chances of another interest
rate cut anytime soon. ECB President Mario Draghi said earlier this
month that the bank’s Governing Council had not even discussed the
prospect of a rate cut at its last monetary policy meeting.

After pumping E489 billion into the Eurozone financial system with
its first three-year LTRO in late December, there have been signs of
improvement in the market for covered bank bonds and in most peripheral
sovereign debt markets, though the interbank market remains impaired and
banks in the periphery continue to struggle for access to non-ECB
financing. A second 3-year operation is scheduled for February 29.
Draghi said recently that he expected bids to be strong but slightly
lower than last time.

Nowotny noted that the forecasts now point to a “mild recession” in
the euro area. “But it has to be said that even a mild recession is a
recession, and this is a development that is overall unsatisfactory,” he
said.

While the ECB sees some “green shoots” in the economy, they are
based largely on external demand, Nowotny said. “Everything based on
domestic demand has problems.”

He said that the increasing economic divergence between Europe’s
southern tier and its core northern members is of growing concern to the
ECB. “Almost all the southern states — Greece, Italy, Spain and
Portugal — have a negative outlook for their economies, which will
worsen their budget situations.”

The European Commission released new forecasts on Thursday showing
that the economies of Italy, Spain, Greece and Portugal would all
contract this year, while Germany, France, Finland and Austria would
post growth.

“From the viewpoint of the ECB, monetary policy has to be based on
the whole of the Eurozone and not tend to different countries’ needs,”
Nowotny said. “And this will become more difficult the more the
economies diverge.”

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