(Adds Knot pressing France and Italy to reform)
By Paul Carrel
FRANKFURT, July 16 A European Central Bank
policymaker cast doubt on Wednesday on whether the ECB will go
ahead and buy asset-backed securities - trumpeted last month as
a possible measure to help revive the euro zone economy.
The ECB, which announced a barrage of measures in June to
pump money into the sluggish euro zone economy, has said it is
stepping up preparations to buy ABS in future, which it sees as
a way to help channel funding to smaller businesses in the bloc.
Ewald Nowotny, a member of the ECB's policymaking Governing
Council, said the central bank was looking with an open mind at
the possibility of buying ABS, but was not certain to go ahead.
"I'm not sure this thing would fly," he said during a
question and answer session after giving a lecture at Frankfurt
Asset-backed securities are created by banks pooling loans
such as mortgages or car loans into an interest-bearing bond
that is sold to raise funds. The market has not recovered
following the global financial crisis, which was triggered by
doubts about the quality of assets in supposedly rock-solid U.S.
The ECB and Bank of England are trying to foster a revival
of securitisation in Europe, and Nowotny's remarks appeared to
cut across the message given by some other ECB policymakers.
Yves Mersch, a member of the Executive Board that forms the
core of the ECB's 24-member Governing Council, said last month
that "there is a growing consensus that an instrument once seen
as part of the problem could in fact be part of the solution".
Nowotny also said on Wednesday that the ECB must pursue an
active policy stance to address low growth and inflation in the
euro zone, even though it recognises there is a risk of asset
price bubbles forming as a side-effect.
"The 'new normal' is a situation where we have low economic
growth, low inflation, but also for the banks lower
profitability, lower asset quality and less short-term funding,"
"I think this is a situation that will stay with us for
quite some time," added Nowotny, whose role as Austrian central
bank chief gives him a seat on the ECB's Governing Council.
The ECB cut interest rates to record lows last month as part
of the package of measures to breathe life into a sluggish euro
zone economy, where inflation is running far below the central
bank's target and there is a dearth of credit to smaller firms.
Another ECB Governing Council member, Dutchman Klaas Knot,
pressed home the central bank's call for governments to do more
to shape up their economies.
"In countries like France and Italy the reform tempo is too
low still," Knot told RTL television.
"Markets are volatile, there are enormous capital flows each
day from one location to another. If we don't learn enough
lessons from the previous crisis you can't exclude there being
another crisis," Knot added.
(Additional reporting by Thomas Escritt in Amsterdam; Editing
by Catherine Evans and Susan Fenton)