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Nowotny Says Members Underestimated Discipline Required By Euro

October 25, 2011

Oct. 25 (Bloomberg) -- European Central Bank Governing Council member Ewald Nowotny said nations “massively” underestimated the budget discipline required to be a member of the euro area, which is similar to that enforced by the gold standard.

“The monetary situation of an individual state in the euro area isn’t significantly different from a currency regime based on gold,” Nowotny said in a lecture at the Vienna University of Economics and Business today. The euro imposes more budget discipline on member states because it doesn’t allow the central bank to bail them out by printing cash, he said.

“The strict discipline the euro system imposes upon the member states was massively underestimated,” he said, adding it was “much more severe than the discipline of a country that has access to the central bank.”

The problem for a country like Greece is simply that it can’t finance its deficit on financial markets, said Nowotny, who also heads Austria’s central bank.

“It’s very simple: there is a lot of folklore around it, like ratings agencies et cetera, but this is all peripheral,” he said. “The core is that if I have deficits, I need to find someone ready to buy my debt. That readiness to buy government debt has fallen dramatically.”

--Editors: Zoe Schneeweiss, Matthew Brockett

To contact the reporter on this story: Boris Groendahl in Vienna at

To contact the editor responsible for this story: Angela Cullen at

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