–Posen: Euro Area To See Slow Growth In Coming Years
–Posen: Evidence Suggests Global Imbalances Due Real Econ. Factors
–Posen: IMF Underestimating Likely Size of US Deficits

LONDON (MNI) – Bank of England Monetary Policy Committee
Adam Posen highlighted Friday the sheer extent of the challenges posed
in tackling global imbalances.

Speaking at a monetary conference in Germany, Posen said the US
fiscal position is unlikely to improve, the euro area is set to see slow
growth, the US current account could widen and the dollar strengthen.

Posen does not believe there is the political will in the US to
tackle its swollen public sector deficits.

“The US fiscal situation is unlikely to improve … any time in the
near future,” Posen said.

“I would suggest the IMF is underestimating the deficit
significantly,” he added.

“There is very little political will for a change in taxes (in the
US), there is very little political will for a cut back in military
spending, in the healthcare bill that has passed there is very little
cost containment,” Posen said.

“We are going to really get some really interesting tests of
concepts of sustainability in the next couple of years,” he added.

Posen warned that re-pricing of sovereign risk, with prices of euro
area and UK debt pushed up more than US debt, would boost the dollar.

“Presumably if we do see a re-pricing of risk in a sovereign debt
context that is more biased against both Europe and the UK and others
and not so much against the US, then we will also see an exchange rate
effect … We will see a dollar that is relatively strong,” he said.

This could lead to “a widening of the current account deficit” in
the US while the euro area, at best, will see sluggish growth in the
next few years.

Posen said academic papers at the conference made a strong case that
“global imbalances are fundamentally driven by real factors and
monetary factors have very little to do with it.”

Monetary policymakers, therefore, have limited ability to help
tackle them.

–London newsroom: 4420 7 862 7492; email: drobinson@marketnews.com

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