October 11, 2010 / 11:31 PM / 10 years ago

UPDATE 1-ECB's Nowotny sees no deflation in euro zone

(Updates with comment, background, adds byline)

By Daniel Bases

NEW HAVEN, Conn., Oct 11 (Reuters) - European Central Bank Governing Council Member Ewald Nowotny said on Monday the euro zone faces neither inflationary nor deflationary pressures.

“We see that inflation expectations are very well founded and not volatile for the time being, so we see neither danger of inflation nor a danger of deflation for the euro zone,” Nowotny told reporters after a lecture at Yale Law School.

Nowotny, who had attended the weekend meetings of the International Monetary Fund and World Bank in Washington, said he saw the gathering as a fruitful forum for discussion of the currency volatility that has roiled global markets.

Some nations, in moves to protect their export-driven economies, recently have intervened with policies and actions to weaken their currencies.

Asked if he thought greater currency coordination between developed nations was necessary, Nowotny, gave a qualified “yes.

“I think it would make sense if this means we could avoid abrupt changes in exchange rate relationships. I think that there are ongoing talks both within the IMF and the G20, and I am quite optimistic that there will be no severe disruptive developments,” he said.

“The whole idea of a “currency war” is rather absurd to me,” he added.

The euro is up a little more than 3 percent year-to-date against the U.S. dollar, after surging nearly 10 percent against the greenback in the last month.

Nowotny, who is also the governor of the Bank of Austria, would not say whether he was concerned about the risk to economic growth of countries on the periphery of the euro zone from the stronger euro.

“What we have is that there is a structure that has been agreed between Greece and on the other hand ECB, EU Commission and IMF,” he said. The IMF and EU last spring entered into a 110 billion euro bailout deal for debt-stricken Greece.

“This program is working and I think working in a sufficient way. This is the basis for our decisions in this case,” Nowotny said. (Editing by Leslie Adler)

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