Brexit could lead to political instability in EU: ECB's Makuch

[June 20, 2016]  VYSOKE TATRY, Slovakia (Reuters) - Britain's departure from the European Union could lead to political instability within the bloc and slow down further integration, European Central Bank Governing Council member Jozef Makuch said.

The referendum on Thursday could also lead to financial market instability but the ECB will act to reduce market volatility as it has "done many times in the past," Makuch, who is also Slovakia's central bank chief, told reporters.

Financial markets around the world are on edge ahead of the June 23 referendum.

"We see the risk of Brexit in three areas: political instability that could occur in countries with strong eurosceptic parties, which could lead to a local political instability," Makuch said, citing Spain as an example.

"There is possible instability linked to the speed of integration," he added. "There are issues that require a unanimity which would be problematic to reach in case of uncertainty."

Potential market instability was the ECB's biggest worry but it has the tools to act and tailor its response, Makuch said.

The world's biggest central banks have an unlimited swap agreement, allowing them to maintain currency convertibility even if markets fail.

Sources earlier told Reuters that the ECB would pledge to backstop financial markets in tandem with the Bank of England should Britain vote to leave the European Union.

While acknowledging the potential instability from Brexit, the ECB was already reviving both growth and inflation with its extraordinary stimulus, Makuch said, calling for patience with already approved measures.

A Brexit supporter holds a Union Flag at a Vote Leave rally in London, Britain June 4, 2016. REUTERS/Neil Hall

Hoping to revive the 19-member euro economy, the ECB has cut rates deep into negative territory and buys 80 billion euros ($90 billion) worth of assets per month.

"If we conclude that these tools are not effective enough, we will consider either their recalibration or new tools," Makuch said in comments authorized for release on Monday.

"It's equally likely that we won't need to recalibrate the tools because the present tools will have a sufficient impact on the market, and GDP (gross domestic product) and inflation growth will be so satisfactory that there won't be a need to continue," he said. "It's too early to say which of these two scenarios is correct. We need to be patient."

(Reporting by Tatiana Jancarikova; Writing by Balazs Koranyi; Editing by Ruth Pitchford)

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