CAMBRIDGE, Massachusetts (MNI) – There could be good grounds for
bringing back a fixed-rate, full-allotment refinancing operation of more
than the current maximum tender of six months, European Central Bank
Governing Council member Ewald Nowotny said.

Speaking before students at Harvard University, the head of the
Austrian National Bank said that as regards the provision of liquidity
to Eurozone banks, “whatever banks need they will get as
long as they have adequate collateral” and there is therefore “no
liquidity crunch.”

Observing that the ECB’s longest-term tender under the fixed-rate,
full-allotment regime is presently six months, Nowotny affirmed that
“there might be good reasons to enlarge this because what we see now is
the banks in the situation they are in … may have a problem finding
adequate long-term liquidity.”

While declining to speculate about a possible haircut on Greek
debt, he offered “just one hint” on the subject. “Even if you talk about
the haircut, it’s always a question of haircut on what … so if it
comes to this it will have to be discussed but I do not consider this” a
scenario.

As to the need for outside help, possibly from emerging markets, to
solve its problems, Nowotny said, “I think that the European Union is
very well able to fix this by itself. But … it will take time. because
this is not just a short-term problem, but … it is a structural
problem.”

Portugal, he noted, is faring “more or less okay” in applying its
adjustment program.

The bond-buying program of the ECB is not quantitative easing,
Nowotny asserted. “It is not a program to enlarge the money supply in
the economy, because whatever the ECB is buying, this money is
sterilized.”

Rather, he said, the program exists to “correct imperfections of
the market.” However, “of course one has to be quite honest because at
the end of the day it is not quite clear” how to define a dysfunctional
market. “But in any case it is a limited program.”

As he has on many occasions, Nowotny again denied that there is any
“problem of the euro as a currency” given that it functions as a means
of transaction without any problem and that the ECB is seeing to it that
the euro retains its value. Indeed, he said, “the euro … is the most
stable currency in the world next to the Swiss franc.”

“But several member states of the Eurozone do have problems,” he
said.

In other comments, Nowotny said that “the challenge now is to
prevent feedback from financial markets” and said that he does “not see
a reasonable perspective for change of the European Treaty in the
foreseeable future.

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

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