‘Too soon to declare crisis in EU over’

Major central banks’ reassurances that interest rates will stay low for some time are giving markets “a certain security”, an ECB policymaker said.

Another European official, however, warned against complacency and said it was too soon to say that the eurozone crisis was over.

Ewald Nowotny, a member of the ECB’s governing council, said the so-called forward guidance from central banks was here because of weak economic growth and high levels of uncertainty.

“That means the central banks are giving markets a certain security that we will have a low level of interest rates for the foreseeable future, no rise but rather steady or lower,” he told a panel discussion at an economic conference in Austria.

“But this forward guidance is not unconditional.”

The ECB has tied its forward guidance on interest rates remaining low to the inflation outlook and monetary dynamics remaining subdued — a scenario that shows no sign of changing any time soon.

Non-eurozone Britain’s forward guidance is tied to unemployment, which the Bank of England also believes will remain stubbornly high for some time to come.

Nowotny made his comments ahead of an ECB policy meeting next Thursday.

The ECB’s 23 governing council members will meet against a backdrop of improving economic data in the eurozone, though the gradual recovery is uneven and led by Germany, where business sentiment hit its highest level in 16 months in August.

At the same conference yesterday, the European Commission’s economic chief Olli Rehn said there are signs of a gradual economic recovery in the eurozone but it is premature to say that the crisis is over.

“Let’s be clear, especially in view of the dramatic levels of unemployment in many parts of Europe, there is no room for complacency... Pronouncements that the crisis is over are premature, to say the least,” he said.

Rehn later told Reuters that the fragile European economic state should continue into next year and become more solid.

Germany and France hauled the eurozone out of a 12-18-month-long recession in the second quarter but the recovery is uneven, with much of the periphery still dogged by recession.

Rehn said greater fiscal credibility in eurozone countries, action by the ECB to stabilise markets, and better economic governance had all strengthened the bloc’s ability to withstand political shocks.

He added that Greece was making good progress but a decision on whether Athens may need a third bailout could not be made until the troika of its international creditors completed an assessment in late September and early October.

— Reuters