Tags: ecb | recession | double | dip

European Bank Official Doesn't Fear Recession Relapse

Tuesday, 19 Jan 2010 08:23 AM

The euro zone will not fall back into recession, European Central Bank Governing Council member Ewald Nowotny says, while the ECB may, at some point, want to copy Fed plans to squeeze excess cash out of the banking system.

The ECB continues to stress the 16-country euro zone faces a bumpy road to recovery following the recent financial crisis and recession.

In an interview with Reuters Insider television on Monday, Nowotny was upbeat, ruling out the chance that the region could see another extended contraction when stimulus from governments and the bank wears off.

"I do not see a perspective for a double dip recession. We are in a (period of) slow but steady growth. If there ever has been such a perspective, it has decreased," Nowotny said.

Details of a subsequent more detailed discussion with Reuters News reporters will be published later on Monday.

ECB staff in December forecast growth of between 0.1 to 1.5 percent this year for the euro zone as it gets over the recent global turmoil.

The bank kept interest rates at a record low of 1 percent last week and gave no signal it was intending to change them any time soon.

Nowotny, a policy maker at the ECB due to the fact he heads Austria's central bank, also talked about Greece, where worries about its public debt have renewed speculation that it could be forced out of the euro.

"Right now I think that, at a rather late stage I'm sorry to say, they (Greece) now have taken the right steps," he said referring plans to cut its deficit.

But he also fired a warning to those betting that other Europe countries will come to the rescue if Greece can not solve its problems.

"We have a strict non-bailout clause in the EU treaty. For us this is a very clear perspective," he said. "Discussion from the side of the EU member countries about some bilateral aspects and other things? I'm not aware of (that)."

The ECB has fought the financial crisis mainly by providing billions of euros of ultra-cheap loans to euro zone banks in the hope of shoring up banks' finances, and propping up lending to the firms and consumers in the real economy.

The move has fueled a sharp rise in the amount of cash in the euro zone banking system, and while it will disappear naturally when banks pay the loans back, money market analysts suggest the ECB may siphon some out earlier to get banks used to normal conditions again and ward off fledgling inflation fears.

Nowotny said the ECB may, at some point, consider mirroring the U.S. Federal Reserve's recently floated plan to offer banks a higher-than-normal interest rate if they are prepared to park cash at the Fed for longer.

"For a medium and longer term structure, this might be something we might discuss but there is no immediate need for it," he said.

He also played down fears that money market tensions could re-ignite at the start of July when banks have to pay back the 442 billion euros of one-year loans they borrowed last year.

"I'm sure they (banks) will be able to do it (cope). The ECB has stopped the 1-year operations but we haven't stopped the other operations. That means there are still a lot of instruments from the ECB side to provide the amount of liquidity that is needed."

© 2017 Thomson/Reuters. All rights reserved.

   
1Like our page
2Share
StreetTalk
The euro zone will not fall back into recession, European Central Bank Governing Council member Ewald Nowotny says, while the ECB may, at some point, want to copy Fed plans to squeeze excess cash out of the banking system. The ECB continues to stress the 16-country euro...
ecb,recession,double,dip
568
2010-23-19
Tuesday, 19 Jan 2010 08:23 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved