MNI POLICY: Euro Rate Hike Could Boost growth, Nowotny Says

By Luke Heighton

     VIENNA (MNI) - Raising key eurozone interest rates poses little risk to

financial stability, the governor of the central bank of Austria said Monday.

     Here are key points from Ewald Nowotny's speech on fostering closer

economic integration between Central, Eastern and Southeastern Europe (CESEE) in

Vienna:

     -- "To my mind, the normalisation of the eurosystem's monetary policy -

which also includes future raising of interest rates - poses little risk to

financial stability, both with regard to the euro area and with regard to the

CESEE region"

     -- "Given the reasonably robust economic recovery, a well-communicated and

predictable exit might even benefit the financial structures of countries

concerned, and thus the long-term growth perspectives," he said. "The

alternative, market interest rates that stay low for a very long time, might

even impair financial stability."

     -- Economic cycles in euro area countries "are converging", but the gap in

income levels has widened following the financial crisis. The EU's regional

policies therefore need to be "upgraded" to target skills, innovation and

vulnerable regions, and seek synergies with private investment flows.

     -- EU funding can help EU Member States "align their economic performance

and thus stand united. After all, cohesion and convergence form the cornerstone

of European integration," Nowotny added.

     -- He called for a further deepening of Economic and Monetary Union, while

stressing both how "cumbersome" the process of process of economic and political

integration has been "and yet, how easy it is to undo its achievements."

     -- Discussing the global financial crisis, Nowotny said: "Today we can

truly say that all the efforts undertaken to prevent the worst from happening

have succeeded in the end. Initially, coordinate monetary and fiscal expansion

on a global scale was instrumental in avoiding economic meltdown of the kind

experienced during the Great Depression [...] Yet there is no reason for

complacency. High global debt, large global imbalances, a weaker post-crisis

growth path, pending monetary policy normalisation and remaining EMU

imperfections pose challenges that will have to be tackled, to say nothing of

the political risks exemplified by Brexit."

--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$E$$$,M$X$$$,M$$EC$]