FRANKFURT (MNI) – The European Central Bank is engaging in de facto
fiscal transfers, via its purchasing of sovereign bonds of highly
indebted countries, Bank of England Monetary Policy Committee member
Adam Posen said in an interview published Thursday.

While the euro area’s inability to make fiscal transfers is often
cited as a weakness, Posen said the ECB in effect doing precisely this
through its sovereign debt buying.

“Via the ECB [fiscal transfers] are, however, de facto taking
place. It now is buying sovereign debts of especially highly indebted
countries, and through this interest rates for these papers are falling.
The interest rates of other countries are, however, rising. That is
nothing else but a transfer,” he argued.

Despite the current crisis, the euro is not lost as a currency,
Posen told Germany’s Spiegel Online, but he added that the currency has
for the time being lost its chance to become a “real world currency”.

“There are still many possibilities to stabilize the economy and
the currency” in the Eurozone, Posen said. The currency zone could fight
internal economic imbalances, and save more, he added.

“For example, Germany lives above all from exports and neglects
domestic consumption. The [German] government could change that” by
encouraging higher salaries, he said.

Pressed on the feasibility of this, Posen noted that the German
government for many years pushed wage moderation, but now it should push
in the other direction, he urged.

“The euro is not lost. It is still an important regional currency,”
he underlined. “Of course it has for now lost its chance to become a
real world currency,” he said.

Asked if the next big crisis similar to Lehman Brothers is looming
in light of concerns about Greece and the euro, Posen said “for a moment
it looked like that,” noting the problems banks had in obtaining cash
and fears of a panic-inspired sale of sovereign bonds.

Thus, the world put pressure on the Eurozone, “but now via the
rescue plan, this danger has been averted,” he said.

Pressed about the danger of speculators creating a run on the euro,
Posen said that if anyone were to unload enough euros onto the market,
that could accelerate the fall of the currency.

“But, first one must have the money for that. I don’t think that
such an attack would be worth it. You are really taking these people too
seriously,” he said.

–Frankfurt bureau; +49-69-720142; frankfurt@marketnews.com

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