VIENNA (MNI) – The European Central Bank still has the means to
provide liquidity to the Eurozone, but measures to bolster confidence,
notably via financial integration, are needed as well, ECB Governing
Council member Ewald Nowotny said Friday.

Asked at a press conference here, whether the ECB was also ready to
activate its interest rate lever, the president of Austria’s central
bank noted that ECB President Mario Draghi had signaled this week
“increased downside risks to the economic outlook.”

The ECB “never precommits,” Nowotny reminded. But given the growing
risks, the ECB “might have to react,” he said.

Asked about the possibility of an overnight zero deposit rate, he
said it was imaginable in principle but should be seen only in
connection with the overall interest rate structure, “which we will have
to observe.”

Refinancing in the euro area “is the most vulnerable point in
difficult times, because it is very dependent on the trust of potential
buyers of government bonds,” he stressed. “Therefore anything to
strengthen this trust is a very important measure.”

“Europe currently is the weak spot of the global economy,” he
added.

“I want to stress that the ECB still has instruments at its
disposal,” he said. “It’s not as if we don’t have any more
possibilities, for example to expand liquidity.”

However, another long-term repo operation or a revival of the SMP
bond-buying program is “not on the radar at the moment,” he said.

“These instruments should not be seen in isolation, but rather
together with European financial policies,” Nowotny explained. “In this
area, a lot has already started in view of a banking [union], or rather
European financial union.”

“We all know that this is a long-term project which means a
transfer of competences to the European level,” he reminded.

“For me, realistically, it is also possible to do this only in the
euro area, if Great Britain is not willing to contribute,” Nowotny said.
“We see the necessity not to be blocked by just one country on important
financial issues.”

At the European level, there must be greater control over financial
developments in individual countries, he said, proposing as a first step
the standardization of banking supervision, a common deposit guarantee
fund and a resolution fund to help banks or, if necessary, to dissolve
them.

The central banker suggested that Spain make rapid use of the offer
by European leaders to turn to support from the European Financial
Stability Facility.

“I believe that the experiences of the past have shown that such
instruments should be used sooner rather than later, since the more you
delay the more expensive it gets.”

Nowotny said he opposed changing refinancing rules for Spanish
banks to prevent a widening of crisis: “There will be no money without
conditions, and I’m against moving the goal posts.”

Asked about the possibility of deploying the resources of the
future European Stability Mechanism directly to refinance banks, he
replied: “At the moment it not possible for individual bank refinancing
from the ESM. It has to be in the framework of a program.”

“This is because neither the ESM nor the EFSF are giving away money
unconditionally; the size of the program then has to be decided by the
country,” he said.

“These conditions are not set up to make it harder for countries
but to ensure their long-term sustainability,” he added. “Money from the
ESM or EFSF is not a permanent solution but an interim solution. It’s
help for them to help themselves.”

Nowotny urged governments to act quickly to launch the ESM. “I am
worried about the starting date,” he said. “Large countries like
Germany, but also unfortunately Austria, have not ratified it yet.

“This would be an important political signal not only for Europe
but also for international investors’ trust in the viability of Europe,”
he underscored. “I would like to see faster, more resolute steps to be
taken here.”

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