ECB's Nowotny sees reason for 'cautious optimism'

Austrian central bank governor and ECB board member Ewald Nowotny says markets are more stable, giving some reasons for optimism

Request a PDF
The German growth figure is still within expectations, while the financial markets have stabilized in what regards the eurozone, Nowotny told journalists on the sidelines of a banking conference in Vienna organized by Euromoney Conferences.
He said he was not “specifically concerned” about the German growth figure, which came in at 0.7% for last year. The economy shrank by 0.5% in the last quarter of 2012.
ECB President Mario Draghi said last week that financial markets had stabilized in the eurozone, with spreads for bonds of periphery countries tightening against German Bunds. Nowotny agrees with this assessment.
“We are in a clearly much more stabile surrounding now. There’s no reason to be careless, but I think there is a reason for cautious optimism,” he said.
The euro, despite comments from Eurogroup president Jean-Claude Juncker that it is “dangerously high,” is not a matter of concern for the European Central Bank, the Austrian central bank governor also said.
“As you know, the ECB has a price stability goal. We do not have an exchange rate goal. I think one should not over-value the short-term fluctuations of the exchange rate and I do not see a perspective of a longer term trend. So therefore it is, from my point of view, not a matter of major concern. “
Critics have said the ECB’s new instrument to fight the eurozone crisis, the Outright Monetary Transactions (OMTs) - by which the bank would buy bonds of distressed periphery members who request the aid of the rescue fund the European Stability Mechanism (ESM) - amounted to money printing and would ultimately be inflationary.


But Nowotny reiterated that the central bank’s main mandate was to maintain inflation at close to, but not above 2%.
 “This means if you are in a situation in the medium term of deflationary pressure, it makes sense to have a higher inflation rate but always within the goals of the European Central Bank.”

 More from
 Banks' deleveraging only 'two-thirds of the way' done
 Nouriel Roubini of Europe? Pessimistic bank CEO
 Emerging markets outlook 2013: bulls beat bears
Asked whether there were any deflationary pressures in the eurozone now, Nowotny answered: “I don’t see this for the time being but the ECB always is careful in both ways, avoiding inflation but avoiding deflation too. For the time being I think we are in a quite balanced situation.”
The OMT is just one instrument in the central bank’s array of tools to fight the crisis and it must be seen in the context of maintaining price stability, which is its main mandate, he stressed.
 “One shouldn’t discuss one single element; it always depends on the whole spectrum of monetary policy. For us at the ECB the main point always is to ensure to ensure price stability. Every specific detail must be seen in this context.”
For the ECB to launch the OMT, countries that request it must first meet the conditions set out in the programme, he said.
“As you know it’s a programme that is available in the context of other groups. We are prepared but we are not the ones to take the initiative.”
Nowotny added that the ECB’s decision last week to keep rates on hold despite worsening economic data and contrary to some market speculation that it would ease monetary policy was “well grounded.”