February 18, 2013 / 11:50 AM / 5 years ago

ECB's Nowotny says don't dramatise euro strength

VIENNA (Reuters) - The euro’s exchange rate should not be dramatized with needless talk of currency wars, European Central Bank policymaker Ewald Nowotny said on Monday, noting the currency was moving within standard ranges.

Austrian National Bank (OeNB) Ewald Nowotny reacts as he briefs the media during a news conference in Vienna December 7, 2012. REUTERS/Herwig Prammer

The euro hit a 15-month high against the dollar earlier this month, complicating the ECB’s policy making tasks by weighing on growth and feeding expectations that it may have to take fresh policy action although some ECB members are against that.

“The dollar/euro exchange rate is moving in a range we have had before. We have had no special developments. There is a euro appreciation against the yen but not to a dramatic extent,” he told reporters.

The yen dipped near a 33-month low against the dollar on Monday after Japan’s prime minister signaled no change to the country’s ultra-loose monetary policy, which its G20 peers earlier refrained from criticizing.

“That means if it stays likes this we are having a sham discussion,” he added, calling talk of a currency war - amid market perceptions that many central banks are trying to cheapen their currencies - “absolutely unnecessary”.

He reiterated that the ECB, which targets price stability rather than exchange rates, had no need to intervene.

Nowotny, who is also head of the Austrian National Bank, said his central bank still assumed the euro zone economy would reach its low point in the first quarter of this year and then gradually recover.

But he added there were big discrepancies in growth rates among euro zone members and said the outlook could still be revised down.


He thought the Austrian economy would also touch bottom this quarter and could grow a real 0.6 percent to 0.7 percent this year, slightly better than forecast in December.

Nowotny stood up for Ireland’s debt deal this month despite some criticism it blurs the line of central bank financing of national deficits.

Under the deal, Ireland won European Central Bank approval to stretch out the cost of bailing out Anglo Irish Bank, slicing billions off the country’s borrowing needs and cutting its budget deficit.

Nowotny noted that the ECB did not explicitly decide on Ireland’s ability to relieve its debt burden by spreading out payments to its central bank over more years, but added:

“As an outsider I see this as a reasonable solution that was made here”, not least because the ECB had advised against involving investors in Ireland’s debt resolution efforts.

Germany’s Bundesbank, by contrast, took aim at the deal in Ireland, saying the approach “underlines the increasingly close and problematic ties between monetary and fiscal policy in the European monetary union”.

On other subjects, Nowotny said he thought Slovenia had the capacity to handle its economic problems as long as it could summon up the required political effectiveness.

“Slovenia is not to be compared with Cyprus”, whose problems were more difficult, he said.

He said Cyprus was a good example of the need for pan-European bank supervision, adding the country needed to crack down on perceptions its banks are being used to launder money if it wanted to get outside help to address its woes.

Reporting by Michael Shields; editing by Ron Askew

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