–Adds Comments On Euro, Inflation, Gold Rise, ECB Non-Standard Measures

VIENNA (MNI) – The euro’s exchange rate is on the high side, but it
should be seen with “composure,” especially if it is a short-term
phenomenon, European Central Bank Governing Council member Ewald Nowotny
said Friday.

Speaking at a conference here, Nowotny noted that people had also
complained just a few short months ago when the euro was considered too
weak. He said the ECB had no intention of intervention in currency
markets, because to do so would compromise the central bank’s primary
goal of price stability.

“The ECB does not have a currency exchange rate target. We have
flexible exchange rates,” Nowotny, who heads the National Bank of
Austria, said. “The exchange rates are determined on the market. We
don’t interfere because that would conflict with our goal of price
stability.”

He conceded that the euro is “at a point that is relatively
high…but before there were those who worried about it being too low.”
He added: “We should see it with a certain amount of composure. If it
happens over the short term, it won’t have any massive consequences. Of
course if it happens over the long-term, it does dampen our exports.”

Overall, Nowotny boasted, “the Euro is one of the most stable
currencies of the world and is more price stable then the previous
national currencies.” Austria’s Shilling and Germany’s Deutschmark, he
noted, had higher levels of inflation.”

Nowotny also said the ECB’s currently low refinancing rate of 1% is
the result of the financial crisis, and “it won’t last forever.”

Nowotny noted the recent sharp runup in gold prices, in tandem with
the drop of the dollar, and said it was based on “a certain amount of
fear — fear of inflation, fear of other consequences.” But, he assured,
“such fears are not justified. For the [euro] area, we don’t see any
risk of inflation.”

With regard to the ECB’s non-standard liquidity measures introduced
during the financial crisis, Nowotny reiterated that the central bank is
“in the process of the exit strategy” and that “successively, these
measures are being removed…in an exact way so that we can keep our
goal of price stability.”

Nowotny, like so many of his ECB colleagues, stressed the need for
a return to fiscal discipline. Noting that most EU states are in breach
of the 3%-of-GDP deficit limit, he said, “now is the time to reduce
budgets.”

The Greek crisis, which sparked the wider Eurozone debt crisis
earlier this year, was “due to mistakes, of course from Greece itself,
but also at the EU level,” Nowotny said.

“The markets underestimated the risks [in Greece],” he noted. “And
now we have a very painful restructuring process. But it is necessary.”

–Frankfurt newsroom, +49-69-720-142; frankfurt@marketnews.com

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