Update: Nowotny: See No Immediate Need For Another LTRO

Author: Market News International | Category: News

–Hints ECB May Discuss Bond Buying Option At Mid-Month Meeting
–Adds Nowotny Comments On The Crisis, And From Czech Cbank’s Singer

VIENNA (MNI) – There is no pressing need for another long-term
refinancing operation by the European Central Bank, though one cannot be
ruled out, ECB Governing Council member Ewald Nowotny said Monday

“We can never exclude anything, but I do not see an immediate need
for a similar step,” Nowotny said when asked whether the ECB might
consider repeating the three-year LTROs in December and February that
pumped E1 trillion of liquidity into the Eurozone banking system. “One
has to distinguish between short and medium-term effects, but of course
it is quite obvious that this is a macro measure which does not have the
same effect on all countries affected,” he added.

Nowotny’s comments came during a panel discussion on the impact of
the Eurozone crisis on the economy of the Czech Republic. The Czech
central bank president, Miroslav Singer, also participated.

Nowotny, who heads the Austrian National Bank, appeared to suggest
that the ECB might discuss the idea of reopening its bond purchase
program (SMP) at its mid-month meeting later this week.

Asked when the ECB might start buying bonds again in the face of
growing pressure on Spanish and Italian sovereign yields, he replied:
“There is a meeting of the Governing Council on Wednesday and Thursday
this week, so it is not a good idea to discuss details today.”

He added: “I do not think that this is an operation you should
repeat in short intervals, but you should always check the demand.”

Nowotny acknowledged that divergent economic performances among
Eurozone member states has become a significant problem for the single
currency area.

“One thing we have learned is that in fact we do have substantial
economic divergences,” Nowotny said. While that is not specific to the
Eurozone and may even be more pronounced in the U.S., “what we have
learned — probably the hard way — is that convergence in the euro area
will take much more time than expected,” he said.

He hypothesized that unjustified market optimism about the degree
of convergence among EMU member states “resulted in too low interest
rates for the peripheral countries that led to a bubble economy — in
the case of Greece in the public sector, in the case of Spain in the
private real estate sector — which will take time to be repaired.”

Asked whether the worst of the crisis was over, Nowotny declared
that “no central banker should ever say that. We are living in times
that have great risks and great volatility.”

Still, he sounded a note of optimism, asserting that the banking
system of Europe was now “in a situation where we have reached
stability, where interbank markets are starting to function again. This
part of the problem is solved.”

However, “where I do see problems in is financing, and especially
in refinancing of the public sector,” the Austrian central bank chief

He noted that EMU governments were facing financing needs of E1.4
trillion in 2012. “In normal times this has not been a problem, since
there are huge amounts of savings in Europe. But now this is where we
need to achieve a higher degree of confidence. So where I see the
critical part [of the crisis] is in public financing, and there some
countries that are more affected than others.”

While the ECB has created a number of instruments to help those
states that are most affected, “basically this is a problem each country
has to solve for itself,” Nowotny said.

He repeated the frequently stated view that there is “no crisis of
the euro” but rather of “several member countries in the euro area.” The
euro, he said, “is fulfilling all the functions a currency needs to
fulfill. First is the one of a means of payment and the second is to
serve as a store of value, which means price stability.”

Despite differences of opinion among members of the Governing
Council, the ECB’s price stability mandate is their “uniting view,” he

Singer, the head of the Czech central bank, took a far less
sanguine view of the current situation in the Eurozone than Nowotny did.

“The euro area is not an optimal area for one currency and we all
knew it,” he said. “But the real problem is that heterogeneity is
increasing – and European countries are actually breaking the rules
whenever it is convenient.”

He added: “The question for the Czech economy is whether the
situation is being solved.

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