ECB's Nowotny: Economic Uncertainty Growing 'Massively'

Friday, 31 Aug 2012 06:42 AM

 

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Economic uncertainty in Europe is rising "massively" as growth prospects worsen, especially for debt-strapped southern eurozone members, European Central Bank Governing Council member Ewald Nowotny said.

Nowotny told reporters late on Thursday he could not reveal the latest ECB forecasts for growth in the eurozone before their official release.

"But I can say this much: there will not be an improvement, but rather deterioration in expectations," he said, noting the divergence in growth rates between northern and southern members was widening.

"We have to expect negative growth rates, contraction, in practically all the southern countries in 2012, and France roughly stagnation. That means uncertainty is thus growing massively," he said.

"I think it is important in such a sensitive situation that one assumes that one takes every step in monetary or economic policy with great caution."

Nowotny called on Friday for ideological differences over whether the European Central Bank should buy bonds to be put aside given the uncertain state of the eurozone economy.

He said, however, that the ECB should not buy the bonds of struggling debtors such as Italy or Spain without imposing conditions on the countries involved.

Nowotny told Austrian broadcaster ORF that there was a difference between the bank buying bonds directly from governments - which is seen by some, notably Germany, as direct aid to governments - and purchasing them on the secondary market to get yields down.

But he added: "I would warn against making an over-simple or even an ideological discussion about it."

ECB President Mario Draghi is expected to reveal next week the ECB's terms for intervening in the bond market to help ailing eurozone members.

He will have to reconcile an unwilling German Bundesbank to the plan — Germany's Bild reported on Friday that Bundesbank chief Jens Weidmann had considered resigning over the issue — while avoiding conditions that will scupper its effectiveness.

Nowotny sought to play down any differences on the ECB's Governing Council, which groups heads of national central banks.

"There is complete agreement in the ECB Council - and especially between the Austrian National Bank and Bundesbank - in regard to the absolute necessity and primacy of price stability. There can be differences in matters of details but the basic orientation is one that we absolutely share," he said.
"It's sensible that if one does it, that it happens with conditions," he said.

© 2014 Thomson/Reuters. All rights reserved.

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