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24 April 2024

Euro zone growth may be weaker than hoped: Noyer

By Agencies


European Central Bank (ECB) Governing Council member Christian Noyer said in an interview released on Sunday euro zone growth might be weaker than hoped as a result of market turmoil but he saw no "big setback".

In an interview with the Financial Times newspaper, Noyer said French banks' exposure to the U.S. subprime market was lower than others' and the European Union economy should resist financial turmoil better than that of the United States.

"Growth may be weaker than we hoped but I don't see a big setback," Noyer said when asked about the impact of the subprime crisis on the European economy.

ECB President Jean-Claude Trichet warned after the last rate meeting on February 7 that the euro zone economy might grow slower than potential in 2008.

In December ECB economists forecast 2008 growth of around 2 percent, but a number of ECB policymakers have suggested this might need to be revised down when fresh projections are published in March.

"If we are a little bit below potential, but still close to the average we've had for a number of years... I don't think that makes (structural) reforms impossible," Noyer said in a transcript of the interview released ahead of publication in Monday's edition.

Noyer said the EU economy as a whole was "not immune" from any weakness in the U.S. economy and the consequences of the financial turmoil triggered by the subprime crisis, which has caused billions of dollars in write-downs at major banks.

"But there are a number of factors which mean the European economy should be more resilient and better able to resist." Noyer said.

"For instance, we have in most countries a sound mortgage market, that is protected from the internal weakness that existed in the U.S.," he added.


French banks were relatively well placed, said Noyer, who is also head of the Bank of France. He emphasized that the rogue trading scandal at Societe Generale was an isolated incident.

"The relative exposure of French banks to the US subprime market is still low compared to others. By relative exposure, I mean it is easily absorbed by ongoing profits. It is not something that creates risks for the solvency or liquidity of the banks," he said.

"Before the French banks are seriously hit, many others will have suffered much more," he said.

Noyer said the $7 billion loss that SocGen suffered when rogue trader Jerome Kerviel placed a secret one-way bet on the share market was dealt with quickly, and he reiterated that despite the scandal, SocGen still posted a profit for the year.

"It is not that big compared to accidents that happened recently in other countries which are much longer to treat and much more painful," he said.

Asked if he was referring to British bank Northern Rock, whose funding model collapsed in the credit crisis last year, he said: "I won't give examples and it's certainly not the only example we have within Europe at the present time."

Noyer said he thought the SocGen scandal was probably the result of several small mistakes at different managerial levels in response to warnings by the internal control system, and he did not think there was a serious failure in regulation.

Asked if it was a SocGen specific issue, he said: "Yes definitely ... We're talking of a case of classic fraud."

The judges investigating the case, however, have rejected the accusation of fraud against Kerviel and have chosen to place him under formal investigation for abuse of trust and other charges.

"There was not a culture of excessive risk-taking (at SocGen). It was totally outside the policy of the bank to take such large open positions," Noyer said.