ECB's Nowotny says Dec meet to decide on QE, what to buy if prolonged

By George Georgiopoulos

NICOSIA (Reuters) - The ECB will decide in December on the mechanism for prolonging its quantitative easing asset purchase programme, European Central Bank (ECB) policymaker Ewald Nowotny said on Thursday.

President Mario Draghi last week said the ECB would keep a "very substantial degree of monetary accommodation", dismissing an abrupt end to the 80 billion euro ($87.38 billion) monthly asset buying programme, based on growth and inflation forecasts.

"There will be two decisions ... One of course is to prolong, to what extent, for what duration. The other one is of course to weigh up.. This means we have to buy further assets and the question is what assets, do we have enough assets to buy and this is a point of discussion," Nowotny, a member of the ECB Governing Council, said during a speech in Cyprus.

Central Bank sources have said the ECB is almost certain to continue buying bonds beyond its March cut-off date.

Nowotny said monetary policy of the ECB was successful but said that it had its limits on what it could achieve. "It must be aided by fiscal policy and structural policy," he said.

Faced with a growing labour force, Europe needed to be more ambitious with its growth rate targets.

"We at the ECB have a strong intention to avoid a Japanese situation for Europe," he said, referring to low growth and low inflation.

The Austrian central banker was hosted by his counterpart in Cyprus, which became the first country in the euro zone to experience a bail-in on bank deposits in a 2013 financial crisis.

The Cyprus experience, which indiscriminately targeted depositors at two major banks - one of which was wound down - became a template for dealing with banking crises in the euro zone by shifting the onus of recapitalising troubled banks onto clients rather than onto taxpayers.

"We see that to a certain extent, it is perhaps more difficult than had been thought at the start. Because if this means that the bail-in mechanism leads to losses, let's say, at pension funds, or at other banks so it might be that the problem is just transferred," Nowotny said.

"And maybe at the end of the day it is still (for) the government to find public money ... so we are now in this process where at least we need a certain amount of flexibility, which, I think, is in our arrangements but we are I think in the phase of first experiences."

(Writing by Michele Kambas)