–Adds Comments On French Auctions, Euro Exchange Rate

PARIS (MNI) – The European Central Bank’s unlimited long-term
financing of banks is beginning to bear fruit in sovereign funding for
Eurozone governments, ECB Governing Council member Christian Noyer said
Friday.

Recent sovereign debt issues, notably for France and the bailout
fund EFSF, have “gone very well,” the governor of the Bank of France
noted in a radio interview.

“As the refinancing operations went well at the end of last year
and the start of this year, I think it’s starting to work,” Noyer said,
while insisting that more needs to be done.

He noted that banks have sufficient liquidity thanks to the ECB’s
massive refinancing operations, and that sovereign debt is a safe
investment. “I expect banks to be more active in lending to the
economy,” he added.

The ECB is ready to supply as much liquidity to banks in the
upcoming three-year refinancing operation at the end of February as it
did in December, Noyer said. “We believe we can refinance banks
massively without risk.”

On Thursday France was able to place 10-year paper at a rate of
3.29%, allowing it to repay the debt it borrowed 10 years ago at 4.10%.
“This is a very good signal,” Noyer said.

Even if France’s 10-year borrowing rate Thursday was 10 basis
points higher than in December, it remains “very low,” he noted.

“France’s debt is perfectly reliable,” he stressed. “There is no
doubt about its capacity to repay fully.”

Noyer rejected the argument that France has already lost its
triple-A credit rating, but he insisted on the need for a “rapid,
credible” reduction in the public deficit and debt and an improvement in
competitiveness in order to preserve the favor of investors.

The same applies for the Eurozone as a whole, where the decisions
to toughen the surveillance of member states’ budgets must be
implemented rapidly, Noyer argued.

This strategy will save monetary union, he argued. “The euro is
absolutely irreversible,” he said, expressing “no doubt at all” that it
would continue to exist in the years ahead.

Even if the euro’s exchange rate has slipped recently, the current
euro-dollar rate of $1.28 is still well above the $1.17 level at its
launch, he reminded, adding that the euro “remains very strong.”

As governor of the Bank of France, Noyer has responsibility for
approving shifts in the interest rate for the popular subsidized
domestic deposits in the “livret A”. If the ECB’s outlook for a slowdown
in inflation is confirmed, there might be no need for a hike in the
current livret A rate of 2.25% at mid-January, he said.

–Paris newsroom, +33142715540; email: ssandelius@marketnews.com

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