ECB's Liikanen-Market turmoil has hurt confidence

HELSINKI (Reuters) - Financial market turmoil has had a negative impact on consumer and industry confidence, ECB Governing Council member Erkki Liikanen said on Wednesday.

"The insecurity that the financial market crisis has caused has had an impact on expectations, " Liikanen said in a Finnish-language interview on national broadcaster Yle.

"One is not quite as sure as before that everything will continue as strongly as before. It shows clearly, but if this will be short-term, the global economy is so strong that it can handle this. If the crisis continues for a long time, the situation can change."

Liikanen, who also heads the Bank of Finland, said in the interview, taped on Tuesday, that liquidity issues are completely separate from monetary policy.

"These are two different things. A liquidity crisis does not have anything to do with monetary policy. It has to do with functioning financial markets."

The ECB, which has doubled interest rates since late 2005, left its benchmark rate unchanged at 4.0 percent in September, arguing that the credit crunch that hit in August had increased uncertainty and said it would take time to see things more clearly.

He also said risk has been priced higher after the turmoil started, and higher costs could hamper investments.

"This (repricing of risk) means the loan margins are higher, financing costs are higher, and this of course has an impact on company investments."

Liikanen warned that political oversight of the euro zone central bank, as proposed by some French politicians, would hamper growth.

"If this central bank independence is weakened, it has a negative economic impact, (leading to) insecurity, doubts. Experience shows that when the central bank is independent and division of labor is clear, things go better."

He also ruled out a run for Finnish presidency in 2012, saying he would rather serve another term as central bank governor.