BRUSSELS (MNI) – The interest rates of the European Central Bank
remain at the appropriate level and the ECB’s basic view of economic
developments ahead is still valid, Governing Council member Michael
Bonello said late Wednesday.

The head of the Maltese Central Bank told reporters on the margins
of the Eurofi conference dinner that Eurozone countries’ efforts to
address their fiscal problems are grounds for encouragement.

That the ECB’s official borrowing costs are appropriate is “what we
said last time, and next week we will review the situation again,” he
said. “Things don’t change in a few days.”

Bonello declined to agree that the current situation with regard to
Portuguese and Irish spreads is as bad as it was with respect to Greece
in May.

“Every country situation is unique in many ways — the past history
very important, the track record — I don’t think you can really make
this kind of comparisons,” he said.

“What seems important I think is the need to look at things in a
longer-term perspective. Because day-to-day reactions as we have seen,
there’s a lot of volatility in reactions, and the attention tends to
move and focus from one area to another on the strength of a single
statistic, and I don’t think, from an analytical point of view at least,
when you’re trying to develop an overall impression of what’s happening,
I don’t think that’s the way to do it,” he said.

He continued: “The important thing is that policymakers are dealing
with situations now, and that should be a source of encouragement that
there is clear recognition of the problems and measures are being
introduced to address them. We have had them in some countries in the
past few days and no doubt there will be others coming, but these things
need time.”

As to whether Portugal and Ireland have already introduced
sufficient measures, Bonello said, “there’s no way to tell a priori what
is enough. The important thing is that the problems have been recognized
and they are being addressed with a considerable amount of
determination, given the difficult circumstances.”

Asked if he could envision a double-dip recession in the Eurozone,
Bonello demurred, arguing that “our latest projections do not suggest
that.”

With respect to such a scenario occurring in the United States, he
said, “at the moment we don’t have any evidence pointing in that
direction.”

“We have predicted a long time ago that the [Eurozone] recovery
would be uneven and bumpy, so we have had different indications going
sometimes in different directions,” he said.

It is dangerous to interpret single numbers given the volatility,
Bonello emphasized.

Questioned on his view of the third quarter in comparison with 2Q,
Bonello replied, “We had said it was clear that there was going to be a
rebound and then things would slow down.”

This, he added, is “a reflection of the increased interdependence
in the world economy today,” and in particular of the “very slow
recovery” in the U.S. as well as of the fact that there is “still a lot
of uncertainty everywhere, and of course the tensions in the financial
markets are influencing behavior in many respects.”

Still, the ECB’s baseline growth scenario remains intact, Bonello
confirmed.

On increased private sector lending in August, “these are
incremental changes,” he said. “We have to see whether this actually
continues as we go forward. There is, I suppose, an increase in demand
for credit in some areas of some economies and that is reflected in the
numbers, but whether that is sustainable again depends very much on
consumer behavior and confidence. And these are, I think, the underlying
factors, confidence and trust, especially when you have here and there
these episodes of fragility in some financial markets.”

–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com

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