ECB to avoid further crisis, ensure bank scrutiny: policymakers

Mon Jun 10, 2013 7:49am EDT
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VIENNA (Reuters) - The European Central Bank will keep interest rates low for as long as it takes for the economy to regain solid ground, ensuring crisis does not return with a vengeance, two policymakers said on Monday.

The ECB needs to conduct policy in a way that ensures that the 17-country region sharing the currency is not ensnared again by crisis, Governing Council member Ewald Nowotny said at an economic conference.

"It is more important here to further the expansion and thus avoid falling into a second great crisis," he told reporters when asked about the risks of keeping interest rates low for a long time.

ECB Executive Board member Benoit Coeure told a joint news conference: "We will keep our monetary policy accommodative as long as needed - the governing council has been clear on that," but also noted it needed to keep an eye on the consequences.

Coeure cited the risk that "a protracted period of low interest rates would not create the right incentives for reform in the financial sector, in particular for the restructuring and cleaning up of the balance sheets of euro area banks."

He said the ECB was still evaluating potential policy steps. "In exceptionally difficult times we have the duty to consider all options with an open mind," he said.

The men appeared to differ on how the ECB should start supervision of major banks in the euro zone, a step supposed to begin by mid-2014 after a health check of big banks' assets.

Nowotny, who is also head of the Austrian central bank, said his personal view was that a staggered start might be advisable given the responsibility of overseeing around 130 banks with assets worth around 25 trillion euros ($33 trillion).

Effective banking supervision needed clarity on how to wind up ailing lenders and fiscal backstops that may be required for this, he said, and Europe lacked this clarity.   Continued...

European Central Bank Governing Council member and chief of Austria's central bank Ewald Nowotny gestures during an interview with Reuters in Vienna May 27, 2013. REUTERS/Leonhard Foeger