VIENNA (MNI) – The European Central Bank cannot and will not allow
short-term volatility in financial markets to hinder fiscal
consolidation efforts in the Eurozone, ECB Governing Council member
Ewald Nowotny said Monday.

Opening a conference of the Austrian National Bank, which he heads,
Nowotny said that governments must ensure the long-term sustainability
of their budgets.

Although central banks can calm liquidity crises, they are not able
to resolve crises of solvency, he said, observing that in the aftermath
of the Lehman Brothers failure this principle implied temporary relief
from monetary authorities but longer-run adjustments by the banking
sector.

“In the current situation this means that the Eurosystem can and
will ensure that short-term volatility and speculation in financial
markets do not derail the fiscal consolidation efforts in the euro
area,” he said.

“Again, however, it is the governments that have to ensure that
their public finances become sustainable again in the long run,” he
said.

Nowotny asserted that “confidence in the long-run stability of the
euro is a crucial precondition of economic stability and growth and thus
sustainable public finances.” He noted that the Treaty of Lisbon makes
“very clear” price stability is the Eurosystem’s main objective.

“Be assured that the Eurosystem will stay the course,” he added.

Nowotny affirmed the importance of central bank independence as a
“crucial” factor for monetary stability, arguing that “the success of
the Eurosystem in keeping inflation low and stable since the
introduction the euro” has shown this to be the case.

Central banks, however, are not able to prevent the emergence of
speculative bubbles, he said.

In other comments, Nowotny had warm words for ECB President
Jean-Claude Trichet, also at the conference, expressing his “full
admiration and trust” in Trichet’s leadership “during the years of
crisis and especially also over the past few weeks.”

“It is essential for the ECB to have a President who, due to his
experience and life-long achievements, is able to communicate
convincingly that the ECB is and remains fiercely independent and
inflexibly attached to its primary mandate, price stability,” Nowotny
said. “We are proud indeed that price stability has been fully
maintained in the euro area since the inception of the euro more than 11
years ago.”

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

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