Economic uncertainty growing massively says ECB’s Nowotny

A woman walks past a banner showing an euro sign as part on an advertisement for pizza sales outside a pizza store in Madrid August 1, 2012. — Reuters picA woman walks past a banner showing an euro sign as part on an advertisement for pizza sales outside a pizza store in Madrid August 1, 2012. — Reuters picALPBACH, Austria, Aug 31 — Economic uncertainty in Europe is rising “massively” as growth prospects worsen, especially for debt-strapped southern euro zone members, European Central Bank Governing Council member Ewald Nowotny said.

Nowotny told reporters late yesterday he could not reveal the latest ECB forecasts for growth in the euro zone before their official release.

“But I can say this much: there will not be an improvement, but rather a 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, also head of the Austrian National Bank, confirmed the central bank's forecast that the Austrian economy would grow 0.9 per cent in 2012 as stagnation in the second half follows two good quarters earlier in the year.

He declined to discuss details of the revamped bond-buying programme that ECB President Mario Draghi has announced or to talk about monetary policy ahead of an ECB meeting on Sept. 6.

Markets view the ECB as the only European body with the firepower to tackle fully a debt crisis that has crippled Greece, Ireland and Portugal, and threatens Spain and Italy.

At the meeting next week, Draghi is expected to reveal the ECB's terms for intervening in the bond market to help ailing euro zone members, reconciling an unwilling German Bundesbank to the plan 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.

Inflation was not an issue now.

“In Austria as in all of Europe I see no indication of demand-linked inflation. With these low growth rates it can be ruled out,” he said.

Nowotny noted that struggling euro zone countries were making progress on structural reforms but this would take time, which meant they needed some help for the time being.

“All these protective and support measures we have cannot be permanent but they have to last long enough so that positive structural change can really be implemented, and of course pressure is to be maintained so that this painful process continues,” he said.

He stressed it was crucial to get the euro zone's European Stability Mechanism permanent bailout fund up and running as quickly as possible. He reiterated that the idea of giving the ESM a banking licence had pros and cons but would not elaborate. — Reuters 



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