mt-Dollar's reserve role at risk from U.S. budget uncertainty - ECB's Nowotny

Reuters

VIENNA, Oct 12 (Reuters) - The dollar's role as the world'sleading reserve currency is at risk because of the politicalimpasse in the United States, which has raised fears of a debtdefault, European Central Bank policymaker Ewald Nowotny said.

President Barack Obama and congressional Republican leadersinched toward resolving the standoff on Friday, but struggled toagree on a short-term deal to increase U.S. borrowing authoritybeyond an Oct. 17 limit and to reopen the government.

"If it really comes to a collapse, no one knows exactly whatwill happen. One expects that there are chances to postpone theeffects but by the end of the year at the latest it will berather dramatic," Nowotny told Austrian broadcaster ORF in aninterview aired on Saturday.

"It is apparent that it is extremely dangerous when thepolitics of a country whose currency is the world currency - itis still the most important currency - are driven primarily byvery narrow domestic considerations," he added.

"This discrepancy is very dangerous and in my view will havea negative impact on the long-term role of the dollar."

Interviewed in Washington during meetings of theInternational Monetary Fund and World Bank, Nowotny said jittersover the U.S. budget standoff were already pushing the eurohigher.

This was not such a big problem for Austrian exporters butposed more of a threat to southern euro zone members, saidNowotny, who is also governor of the Austrian central bank.

Jobless rates in Europe were still too high, he said, notingthat the euro zone economy would contract this year. He saidEurope needed to reduce budget deficits but not so abruptly thatit created a negative impact on the economy.

Policymakers will likely know only by mid-2014 whetherGreece will need a third bailout package, he said, adding: "Animmediate aid programme is not in sight."

Nowotny expressed confidence that Austrian banks such asErste Group and Raiffeisen wouldpass stress tests that major European lenders face next year.

"There is a fear that a certain nervousness will arise inthe overall European banking system in connection with stresstests. In such a sensitive situation it is good to be in aposition of strength and I am sure the Austrian banks willachieve this," he said.

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