–Adds More Comments On Greece And Comments On Portugal

VIENNA (MNI) – A fast solution is needed for the situation in
Greece, since the uncertainty currently surrounding the matter
intensifies the uncertainty for the larger economic outlook, European
Central Bank Governing Council member Ewald Nowotny said Friday.

“I do not want to comment about the ongoing [Greece bailout] talks
in detail, but what is certain is that we need a fast solution because
the longer the uncertainty remains, the higher is the economic
uncertainty,” Nowotny said in a press conference at which he presented
the latest growth forecasts of the Austrian National Bank, which he
heads.

“From an economic perspective it makes sense to come up with a
solution as soon as possible,” he added. “Talks are scheduled for this
weekend and I am hoping very much that they will lead to a solution.”

The Eurogroup of EMU finance ministers will meet Sunday and Monday,
joined as usual by European Central Bank President Jean-Claude Trichet
and the EU’s Economic and Monetary Affairs Commissioner, Olli Rehn. Rehn
on Thursday dampened expectations for conclusion of a deal on a new
bailout package for Portugal.

But both he and the International Monetary Fund said they were
optimistic that there would be an agreement allowing the disbursement of
a E12 billion tranche from Greece’s current E110 billion bailout
package.

That would allow Greece to meet payments coming due in July and
would carry the country through to September, when another tranche of
the current loan package is due. However, Rehn set a more ambitious date
— the next Eurogroup meeting on July 11 — as the new target for
reaching agreement on a longer-term bailout package, whose additional
cost over the next three years is estimated as high as E150 billion,
though estimates vary and the details are far from settled.

Both the EU and the IMF continue to insist that in order to get the
E12 billion tranche, Greece must pass a new package of measures —
including E28 billion in spending cuts and tax hikes, and a E50 billion
privatization plan — by the end of the month.

But passage of the measures is far from certain given the political
instability prevailing in Greece right now. Prime Minister George
Papandreou this morning announced a cabinet reshuffle, naming his arch
party rival Evangelos Venizelos as the new finance minister in a move he
hopes will win over enough reluctant MPs to secure passage of the new
fiscal package. Outgoing Finance Minister George Papconstantinou will
move over to the Environment Ministry.

Nowotny’s reaction to the reshuffle in Athens was guarded but
relatively sanguine. “Negotiations are of course easier if there is a
staff continuity, but I expect this transition to run smoothly and for
the information to have been passed on,” he said.

He said release of the E12 billion tranche in the short term “was
necessary to prevent an immediate deterioration of the situation and now
we are seeking a longer-term solution in international negotiations.

Asked whether Portugal might be the next country to face the
prospect of a default, Nowotny noted that the country is in for a tough
time the next few years.

He observed that Portugal’s economy is expected to continue
contracting next year, while the Greek economy is widely forecast to
emerge from recession later this year, having grown at a respectable
clip of 0.8% in the first quarter.

“The difference is that in Greece the programme has been running
for some time so the trough has been reached, while in Portugal the
programme is only just starting,” he explained. “As always, the measures
first lead to a negative development, but Portugal has to keep on
working on these measures — it’s just in a different position in the
cycle.”

In other comments, Nowotny described the global economy as
“normalizing” in view of the deceleration of growth this year to an
expected 4.5%

“For 2012 we have to forecast a certain slowdown globally, based on
the OECD figures, especially fuelled by a slowdown in the U.S.,” he
said.

He repeated the ECB’s staff forecasts for economic activity in the
euro area, pointing in particular to Germany in the context of the
general slowdown foreseen.

The 2.5% expansion anticipated in 2012 for the area’s largest
economy, coming after 3.4% envisaged this year, “is still a
more-than-adequate growth figure,” he asserted. “One could even call it
a high-level growth.”

For the moment, he conceded, “there are clear differences between
the countries in Southern Europe, which are still seeing a negative
development in 2011, which also limits the possibilities to battle the
crisis.”

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

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