TheChek News Flow

Full Interview :

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cash: Governor Nowotny, how do you explain the current turmoil in the markets?

Ewald Nowotny: The fact is: There is a great nervousness. This alone has been a negative impact. We analyze course, what the causes may be. In my view, the unrest is still very much driven by the developments in the emerging markets. On one hand, because this results in a deterioration of the economic situation. On the other hand obviously many investors sold out of the emerging markets, especially sovereign wealth funds. This has a significant impact on the stock markets. What evidence have you for this? I have conducted personal interviews. It is quite clear to me that just SWFs and central banks are currently working hard to be as safe as possible terms of liquidity. Especially for Asian countries is the former Asian crisis a traumatic experience. These States will do everything possible to bring back not the International Monetary Fund into the country need. This is a key point for all Asian crops. They are of the opinion that the intervention of the IMF was very problematic. For them, liquidity is now the most important thing. But the states have indeed also accumulated reserves in order to provide liquidity accordingly prepared. To what extent has the slump on the markets have an impact on the world economy? This is first of all depend on whether we are faced with a longer-term period of uncertainty. Or if this is a phase that corrects itself relatively quickly. But there is no doubt that such a decline, which means a massive destruction of wealth, a very negative impact on their overall mood. How strong is this negative influence, can not yet really determine. Bank shares are indeed fallen dramatically. Finance houses could now be more cautious in lending. That would have been a negative impact on the economy. Certainly, because for the banks, the issue of liquidity management is a very crucial point, so they are cautious on this page. This emphasizes, too, that the measures of the European Central Bank at this stage are of particular importance. Because the ECB is a certain guarantee that appropriate liquidity backups are possible for banks at least in the euro zone. In critical phases liquidity is always the key area. In September last year, you have expressed concerns about the development in emerging markets. Your concerns would but now a lot be bigger? I do not think that has shown here massive additional factors. It was already foreseeable what we can see now. But you have to differ greatly: In the 'BRIC' States, formerly the epitome of dynamism, Brazil is certainly in a difficult position. On one hand, politically, on the other hand certainly due to a tendency of dollar appreciation. Russia is also in a difficult situation, but this is mainly due to the oil price. India is currently a relatively hopefuls. China is in a massive conversion phase. It may be that here is also too rapid liberalization, which will now be withdrawn tend. The causes of the problems in the emerging markets are thus quite different. After the Governing Council meeting last December the markets about the adopted measures of the central bank were disappointed. You ever practiced after criticism that market expectations had been too high. Now massive market turbulence have occurred, and for the March meeting, President Mario Draghi last month announced a review of the monetary policy. Are the expectations of the ECB once again too high? In any case I fear that the expectations might develop in this direction again. I stood in December in the wake of visits to London when I was confronted with an almost ludicrous considerations that had left all contact with reality visible. This is not yet the case. We have a relatively serious discussion. But there is still time until March. Therefore, I believe it is important to make clear here that you do not want to lose in mind games that are not even purely institutionally and technically feasible. If the central bank does not itself to blame for the inflated expectations of market participants? In recent years, central banks have the markets mostly delivered thanks to the increasingly expansive monetary policy what they wanted. This is indeed a very difficult constellation. On the one hand can not act in a vacuum, a central bank. Of course, the central bank must observe the markets, of course, they must also respond to markets. But a central bank must not be guided by the markets reversed. You must make and follow on from their own judgment. I think that the central banks, including the ECB, have chosen the right path. Yields on ten-year government bonds of southern European countries are an indicator of the state of the euro zone. The yield especially the Portugal bond rose significantly again in the last week. Is not questionable that? It shows that markets have a tendency nervousness and therefore particularly sensitive to political changes and announcements. I mean that every government would be well advised to include the reaction of markets which indeed affect the refinancing possibilities in their considerations. The ECB is now trying for years to stimulate the economy in the euro area sustainable. This is done with regionally very varying degrees of success. Fizzling out the effects of the measures is not slow? You have this respect a realistic picture of who, what monetary policy can and what the ECB can. It is the ECB succeeded in preventing a drop in deflation, which is already a big success. It is the ECB's second managed to maintain the functioning of the credit apparatus in motion. Of course, monetary policy can improve the conditions for growth. The actual investment must also be carried by the investors. This is dependent on many factors, not least of expectations in the future. Or at public institutions of the fiscal possibilities. Keyword Deflation: The price of oil makes the ECB is not in their hands to achieve the goal of inflation of just under 2 percent. It is long been far away from this number. The price of oil has a very significant impact on inflation. You also have to be realistic: No central bank in the world can affect the price of oil. This is a development, by which we must by. We have in fact not expected that the oil price falls below $ 30 per barrel. Conversely, I think: Somewhere there are limits. I personally think that we will see already in the second half of 2016, some echo. What do you mean? Echo effect means: If the oil price remains constant, which is already a stabilizing element. And that means that the inflation rate does not decline further. I suppose that we still come someday in a situation of constant oil price because I do not see more big room for developments down. Late February meeting, the finance ministers and central bank chiefs of the G20 in Shanghai. Will one be to agree on a coordinated approach to the turmoil on the markets? Central banks have continuously coordination. One of the great lessons that we have learned from the crisis of the last decade is that central banks are intertwined much more closely about through swap arrangements. Conversely, each central bank must take into account the particular economic and economic conditions primarily in their own field, of course. It has been shown for example that the recovery is very four takes place more quickly and more strongly in the US as an upswing in the euro area. Therefore, it is clear that the United States have started at an earlier time with a rate increase. However, there is now a discussion of how these perspectives develops depends on the growth prospects in the USA. One can not operate in a vacuum, but always with a view of the overall economic developments central bank policy. And that vary from region to region. The US Federal Reserve has, you mentioned it, for almost ten years increased in December for the first time the base rate. Looking back, for example, in thirty years to the time right now: Will we then speak of the great global monetary policy reversal? In thirty years we will be able to evaluate something much better: If the slowdown in growth, we now see a primary economic factor ? Or is it actually the crossing into a different, flatter economic development that can Tagged 'secular stagnation' (long period with no or only weak growth marked by low interest rates and low inflation, n. Of Ed.) Describes. This discussion will take place, and it is my knowledge is currently not possible to provide an answer. They have called for the 'effects and side effects' of an expansionary monetary policy. At most, you should take countermeasures to blistering. How should look the? This is also a lesson from the big financial crisis. We have the term 'macroprudential instruments' now a number of ways to make targeted interventions in order not to have to use all instruments of interest rate policy. This means in concrete terms: In the case of a housing bubble can be more expensive real estate loans by pretending as higher capital requirements or stricter rules for the 'loan-to-value ratio'. These are things that are now used. The side effects of long-term low interest rate policy it is necessary to observe very accurate. At the same time you have but also instruments so that one can deal with side effects of such a policy, at least where it is blistering. There are other areas that are more structurally affected, about life insurance and pension systems. This raises actually a system question: How far can pension schemes based on capital base? Again back to the euro area: How do you see the development in Greece? I believe that there has been in Greece, in fact, significant progress. The banking system has stabilized significantly. Of course, still some things are done. In my view, it is therefore extremely important that the current government remains in office and able to implement the reform program. A situation in which the economic pressure the government would bring the fall and new elections would line, would probably be the worst situation. In the dialogue between Greece and its creditors-economic and political aspects should be considered. One must also consider that in terms of a longer-term development. The German Finance Minister Wolfgang Schaeuble said yes recently that 'to solve the problem of Greece without the instrument an external devaluation is difficult'. This means that Greece may temporarily should exit the Euro. A partial exit ... Well, that was from the beginning a project that would not have been realistic. There are either exit or then remain, everything else is both practical as well as psychologically not feasible. Greece has good reasons to continue to adopt the euro. Of course, then the possibility of an external devaluation is not given. Greece is in the process but in the middle of an internal devaluation. The effects of this process requires a certain time, of course. One is well advised to enter Greece this time. On the other hand, one should also make sure that the reform momentum is maintained. Switzerland and Austria are comparable nations and friendly neighbors. However, the States separates the foreign policy and monetary policy situation. A vast majority of the Swiss people today would refuse to join the European Union and the euro. Can you understand that? As someone who knows the Switzerland quite well, I can understand that. It must be said openly: Of course, the euro area is currently marked by a series problems. Second, one must also see the special position of Switzerland. It is a country, are integrated in the different language groups. Only Switzerland has been reversed to always be aware that it is vital for the country to establish a correct and good relationship with the EU. This will be easier if you do not have membership and must negotiate individual contracts. Switzerland was successful here until now. There are, as you know, problem areas. And it will also be the result of Switzerland, contribute to the solution of these areas. And as elsewhere in Europe have also in Switzerland right-wing conservative parties upswing ... ... unfortunately this is a pan-European phenomenon. Although I do not presume to me now to give outside an assessment of Swiss domestic policy. Have the Swiss franc or Scandinavian currencies in Europe in the longer term have a chance to exist alongside the euro? I would not venture to enter Switzerland if I would now say something against the Swiss franc (laughs) . Seriously: I see quite a future. But it is clear: The independent room for a small currency is compared to a large currency area restricted. That's a price you have to pay for an independent currency. But I believe that the Swiss central bank operates a very wise policy. How? She had, in terms of a fixed exchange rate, time allowed for adjustment mechanisms. It has then reversed also seen that this time is limited. I think Switzerland is quite able to cope with the quite considerable structural change and structure need to be successful. The franc has depreciated despite the market turmoil in recent months against the euro. We Swiss puzzle something about it ... Obviously we see the very interesting phenomenon that now the euro has become a safe haven and not the franc (smiles) . You have to analyze in detail, in fact. Because of uncertainties in the emerging markets and the significant capital flows related is from the point sources of liquidity and the aspect of the lower price volatility likely a large currency area like the euro attractive as a small currency area. Of course, here also play expectations of dollars and euros a role.