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ECB's Nowotny says worst over, but growth weak

The worst of the economic crisis is over but growth is still weak and the risk of loan defaults could be rising, European Central Bank Governing Council member Ewald Nowotny was quoted as saying.

“Overall the worst is certainly over,” Nowotny told Austrian newspaper Die Presse. “Growth rates are positive again, but they are still weak. The problems have moved to the real economy.”

“Unemployment is rising and the risk of loan defaults in the real economy could be rising,” he said.

Asked when he expected the economy and labor markets to have fully recovered, he said: “Positive growth rates shouldn't fool us, this is certainly going to take two to three years.”

Austrian plans to raise around €500 million in taxes from the country's banks are problematic for financial stability as are all measures that make it more difficult for banks to retain profits, Nowotny also said.

“Any measure that weakens the capital of Austrian banks is problematic from our point of view ... so in this respect the tax is problematic,” he said.

“That's true however for other measures too, for instance high dividend payouts and high management bonuses,” he said.

The planned Austrian bank tax, part of tax hikes to bring down the budget deficit, was dubbed “solidarity levy” by Chancellor Werner Faymann, whose government has bailed out and nationalized two troubled banks since 2008 and has bolstered the others with fresh capital and bond guarantees.

“On the other hand, we also see the need to cut the budget deficit and everything that helps towards that goal is good for the economy,” Nowotny said. (Reuters)