By David Barwick

WASHINGTON (MNI) – Data make it clear that the global economy has
stabilized, European Central Bank Executive Board member Joerg Asmussen
said late Friday.

“The data show us a clear stabilization in the global economy since
last year,” he told an audience. “The U.S. is showing signs of a
sustained recovery. The data releases have consistently surprised on the
upside throughout the first quarter of this year.”

U.S. unemployment is at a recent low, he noted.

“In the euro area, data confirm a stabilization of economic
activity at low levels,” he said. “So we continue to expect to have a
very mild recession in 2012, and our economy will gradually recover in
the course of the year.”

Strong exports to the U.S. and to emerging markets support this
outlook, he reasoned.

However, he said, “downside risks remain”, mainly due to financial
markets, and “we must very closely monitor the situation in the Spanish
government bond market.”

The rise in Spanish yields “can only be addressed through
consistent and determined reform even if it’s painful in the short
term,” he said. “Spain has obviously a credibility problem with the
markets,” but this is a problem that can be dealt with.

Asmussen noted that Spain had undertaken the “most significant
labor market reform in a generation,” while “Italy has increased
competition and is modernizing its public administration” and “the debt
exchange in Greece was successful.”

Moreover, “Ireland and Portugal have continued to implement the
EU/IMF programs, which are both on track,” he said.

At the level of the EU, Asmussen lauded the reinforcement of fiscal
rules and the two LTROs conducted by the ECB, which “have eased bank
funding pressures” and “over time, should support lending to firms and
to households across the euro area.”

As to whether the LTROS “have swept the world with liquidity,”
Asmussen said that central bank liquidity “is a very specific form of
money” that does not automatically lead to distortions such as on
foreign exchange markets.

“We should not make simplistic assumptions about one factor leading
to another,” he said.

“The LTROs have certainly prevented an abrupt deleveraging,” he
said, even if loans to the private sector only increased 1.1% in
February. Eventually, they should noticeably spur funding of the real
economy, he said.

“When this happens, we will be constantly alert to any threat to
inflation,” he promised. “Our commitment to price stability in the euro
area is firm and credible, and I think that observers recognize this,
and following the two three-year LTRO market indicators of inflation
expectations showed no sign of inflation above our medium-term
objective.”

–Frankfurt newsroom +49 69 72 01 42; e-mail: dbarwick@marketnews.com

** MNI Washington Bureau: 202-371-2121 **

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