MNI POLICY: ECB Could Miss 2% Target For 3 Years - De Guindos

By Luke Heighton

     FRANKFURT (MNI) - The euro zone could face up to three years of low-growth,

the vice president of the European Central Bank said in an interview published

Monday, but talk of Europe's 'Japanisation' remains wide of the mark.

     The ECB will also continue to use rate cuts, asset purchases and other

extraordinary policy tools as it needs to, he said, though he said he was

increasingly concerned by their "increasingly tangible" side-effects.

     Here are key points from the interview with El Mundo:

     --A recession in Europe is "very unlikely," De Guindos said. But he

admitted to being "worried that we will have two or three years of subdued

growth, of below-potential growth. That is what is worrying me at the moment.

And that this subdued growth may mean that the price stability objective is not

met."

     --De Guindos implied that he did not agree with every aspect of the policy

package announced by the ECB in September, but that non-standard monetary

measures have not yet run their course. "We can still increase bond purchases or

lower interest rates further," he said, "which means that we still have the same

tools available. What is happening is that the secondary effects are becoming

more tangible."

     --De Guindos is "worried" and "concerned" by risk taking in the asset

management sector against the background of low interest rates. He identified a

potential risk of liquidity imbalance, and said: "That is what worries me the

most at the moment. And, while it may not technically be a secondary effect of

monetary policy, because its causes are structural, I am concerned by the

banking sector's low profitability."

     He supported calls from ECB president Christine Lagarde and her

predecessor, Mario Draghi, for greater fiscal support, in particular from

Germany. However, he described the current combination of national fiscal

policies, national budgets and the Stability and Growth pact as "not

sufficient." "We need a fiscal instrument of the sort proposed by President

Macron a few years ago," he said. "An instrument that has the capacity to act

countercyclically and that complements monetary policy."

     --Questioned over whether he would be in favour of changing or widening the

ECB's mandate, or of defining more precisely what is meant by below, but close

to, 2%, De Guindos said was certainly something the ECB "has to look at." The

definition of price stability could be "revisited" during the strategic review

already announced, though discussions had not yet started, he added.

     --De Guindos dismissed the suggestion Europe might be experiencing

'Japanification.' "While European demographics are not brilliant, they cannot be

compared with Japan," he explained. "

     --Helicopter money has "never been," and "absolutely should not" be

considered by the Governing Council, he said.

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: M$X$$$,MT$$$$,M$$EC$]