–Adds Comments On Portugal,Spain,Greece,Belgium, Debt Crisis, ECB’s SMP
VIENNA (MNI) – The recently floated proposal to create a European
Debt Agency that would issue joint Eurobonds is an interesting one but
now is not the right time to be talking about it, European Central Bank
Governing Council member Ewald Nowotny said Friday.
Instead, the priority for EU leaders should be to establish a
long-term European Stability Mechanism, and they should do it “quickly,”
Nowotny, who is governor of the Austrian National Bank, said in a press
conference.
“These are interesting ideas,” he said of the Eurobond proposal.
“From my intellectual past — and I hope also present — I don’t exclude
that one must also consider long term things. But one must not confuse
the long-term concerns with the current political needs. Otherwise there
is confusion.”
He added: “We shouldn’t overburden this discussion with things that
are interesting but that at the moment are not relevant.”
Nowotny said that Eurozone finance ministers’ plan for a new
permanent bailout facility that stipulates a procedure for potential
private creditor burden sharing in the case of a default will be
examined to determine whether it really would require a change to EU
treaties.
But he seemed to suggest it could be done without too much of a
fuss. “This is not something that we didn’t have before,” he said,
echoing the comments of other ECB and EU officials who have argued that
the procedures for debt restructuring outlined in the plan adhere to
currently accepted doctrine. “This is definitely not a question that
could be sensibly dealt with through referendum,” he added. “I would
say, no, this is something that must be dealt with quickly, and if
possible quicker than 2013.”
Nowotny also made clear he was not concerned by recent moves in the
euro’s exchange rate. “The euro is not really under pressure,” he said.
“There are currently fluctuations within a normal range.”
While the current crisis is serious, it should not be seen “as a
danger to the foundations of the euro,” he said. “From an economic point
of view, I see no danger. But one must remember that markets do not
always react rationally.”
He added that, “the economic logic that speaks for the euro is
completely in tact.” However, it “would be sensible and desirable” for
EU leaders, who will meet in Brussels next week, to “adopt and implement
the recommendations at hand for the European Stability Mechanism. That
would, I believe, be a very important and positive event.”
Nowotny also said he expected no changes to ECB policy, either on
interest rates or liquidity operations, in the medium-term. But
eventually, the ECB is intent on ending the emergency liquidity
measures, he said.
“Unconventional measures are not standard measures and are
something that we would like to remove,” he said. However, “over the
middle term we do not have plans to make changes. This applies to
liquidity measures as well as interest rate policy.”
The Austrian central bank head said that the challenge now facing
European officials in the face of the sovereign debt crisis is “not to
fall back into…a banking crisis. And that is what we in Europe are
trying to do. There is a potential danger and we are trying to avoid
it.”
He downplayed the notion that the two principle nations of the
Iberian peninsula could be the next dominoes to fall. “Portugal and
Spain have taken preventative measures and have reduced the need for
outside help,” he said. “Portugal definitely has problems, but it is
determined to solve them on its own.”
He also shot down the idea, floated by some market analysts, that
even Belgium could be in the market’s crosshairs. “Belgium has a good
economy,” he said. “I see such notions as purely speculative opinions.”
Nowotny, acknowledging plans by European officials and the IMF to
extend the repayment period on emergency loans to Greece. “It is true
that the original deadline of 2013 was too short. [Now] Greece has more
time,” he said — though technically the extension isn’t expected to be
formally approved until after the New year.
Asked about a debt restructuring in Greece, Nowotny merely noted
that, “the experience of the IMF show that it is possible within a
certain period of time to put through structural reforms.”
He said the ECB does not expect further changes in its collateral
framework. Earlier this year, at the height of the Greece crisis, the
central bank announced it would accept Greek bonds as collateral no
matter what rating agencies thought of the country’s creditworthiness.
Nowotny also sought to put a more positive spin on the recent sharp
increase in the borrowing costs of countries like Ireland, Greece and
Portugal compared to Germany.
“We had a long time where the spread between Greek and German bonds
was minimal. That lead to refinancing costs that were too low,” he
argued. “We should not see [this] as a crisis, but as a reduction in
market mistakes.”
Nowotny also made remarks that could be interpreted as
differentiating among different tiers of Eurozone states. He said that
“in stormy times, we need a clear orientation,” which means Austria must
not only be anchored within the euro area but also “in the stability
triangle of Germany, the Netherlands and Austria.”
Asked to elaborate, he clarified that the term was “not to
discriminate [against] other countries, but we see [those three] as
like-minded economies” with “similar long-term stability.”
Nowotny defended the eastern European orientation of Austria’s
banking sector. Its international exposure, while considerable, is “not
outside the normal range,” he said. “I must say that as a private
person, I would rather be invested in real estate in Poland than in
Spain.”
Nowotny also stressed, like many of his Governing Council
colleagues, that the ECB’s bond purchase program does not constitute
quantitative easing a la Federal Reserve or the Bank of England.
“The ECB program is much smaller and it is not to provide
liquidity, but as a correction to market irregularities,” he said. He
noted that the ECB continues to sterilize all bond purchases on a weekly
basis.
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