Would make sense for Portugal to seek aid: Nowotny

Reuters News
Posted: Mar 27, 2011 8:00 AM
Would make sense for Portugal to seek aid: Nowotny

VIENNA (Reuters) - It would make sense for Portugal to seek aid from the European Union bailout fund, although such a decision will be caught up in domestic politics, European Central Bank Governing Board member Ewald Nowotny said.

Portugal's Premier Jose Socrates submitted his resignation last week after parliament rejected austerity measures proposed by his minority Socialist government to try to avert a bailout, amid soaring bond yields.

"Today we see that unfortunately the domestic political situation in Portugal has clearly worsened," Nowotny told Austrian broadcaster ORF on Sunday.

"The head of the government has stepped down. Portugal certainly has a problem in terms of competitiveness," he said, noting that Portugal needs to refinance billion of euros of debt in April and June.

"From a purely economic point of view one could probably recommend it," he said, when asked if Portugal should seek an EU bailout. "But as you know economic policy is also politics and in Portugal it's very much about domestic politics -- there will be a discussion process.

Portugal is widely expected to be the next euro zone domino to fall after Ireland and Greece, but a decision on what it might do may take weeks, if not months, because of the upheaval.

Speaking more generally about the euro zone, Nowotny said the ECB was watching energy prices carefully and still wants to move toward a more "normal" monetary policy despite recent events in Japan,

Nowotny said the ECB was examining Japan's crisis and the Middle East unrest for potential effects on the euro zone.

He said he believed the central bank would stick to its overall goal to bring rates within a normal range and continue to withdraw liquidity measures brought in during the financial crisis.

"My personal opinion is that ... nothing will change in terms of our original outlook -- that we want to go in the direction of normalization," he said.

He said events in the Middle East were more relevant to the euro area than Japan because of their influence on the oil price. Energy prices are very high and have captured the attention of the ECB, he said.

"What is important for us is that no second-round effects come," Nowotny, who also heads Austria's National Bank, said.

"The president of the ECB ... already at the last press conference announced we are watching this development extremely closely and that we could make overall monetary policy more restrictive, or how I would rather put it, to normalize it."

(Reporting by Sylvia Westall; Editing by David Holmes)