–Adds Comments On Portugal, Irish Aid Package, Irish Banks

HELSINKI (MNI) – The euro will survive the current crisis without
any country leaving the monetary union, European Central Bank Governor
Erkki Liikanen said early Tuesday in a television interview.

“The euro will survive. It is not questioned,” Liikanen told
Finland’s YLE TV1. He added that in his view it was “impossible” that
EMU could split apart.

But Liikanen, who heads the Bank of Finland, conceded that “nobody
can guarantee” the current crisis won’t spread to other countries in the
Eurozone. “The Irish question has to be solved now,” he said.

In a second interview on Finland’s MTV3, Liikanen sounded more
urgent, saying that the possible spread of problems from country to
country, given the high degree of economic inter-connection, was “a big
threat.”

Liikanen touched on the economy and on current financial market
conditions in the second interview. Asked about the trajectory of
official ECB interest rates, he said the Governing Council never
comments on monetary policy in advance, and he reiterated that the
central bank’s primary objective was long-term price stability.

“I can say that at this moment there is no significant upside
pressure on price stability,” Liikanen said.

He also noted the recent increase in the Euribor rate, saying it
was a sign that markets were normalizing and functioning properly.

Liikanen spoke for most of the time about Ireland and the debt
crisis in the Eurozone in general. He noted that the problem in Ireland,
which he called “a sensitive case,” was that the “banking sector is so
large that the government has had to take large responsibilities for
it.”

He noted that in the European bank stress tests that were published
last July, Ireland’ two top banks were tested and “they made it,” even
though some problems were detected. However, “afterwards, the situation
— especially their liquidity — weakened, he said.

He argued the Portuguese situation was “different from the others,”
and noted that the government Lisbon had already taken steps to address
the problems there.

“Portugal has done a lot, and it’s important that the policy is
kept [in place] and additional actions are taken when necessary,”
Liikanen said. Portugal and other countries in the euro area “have to
balance their government spending in a transparent way that markets
believe in,” he said.

Liikanen declined to comment on whether Portugal would be the next
country to get a bailout package, saying that would depend on the
government’s actions.

“We must solve the problems we have, one at a time,” he said. “At
this point, Ireland is the most important one, and [we must ensure] that
the Irish crisis won’t begin a new negative spiral in Europe that would
diminish the [already] weak recovery.”

Liikanen said the Irish aid package, widely expected to be
completed in late November, will be “strongly conditioned” and that
payments will be made “only when the right actions are taken.” He noted
the package would be “liquidity” rather than “straight support.”

The Finnish central bank chief noted that it would “take years” for
Ireland to pay back the loans. “This is a common principle, that
borrowing is easy but paying back takes a long time,” he said.

He acknowledged that “the Irish people have suffered. Their
adjustment won’t be easy. It’s clear that this is not a happy thing for
them to have to receive the help of others.”

But he stressed that the situation needed to be addressed to stop
the uncertainty from spreading both within Europe and beyond.

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