SAN SEBASTIAN, Spain (MNI) – There is “no doubt” that publication
of the bank stress test results later today will have a “very positive
impact,” European Central Bank Executive Board member Jose Manuel
Gonzalez-Paramo said Friday.

Speaking to reporters after a speech here, Gonzalez-Paramo also
said that both the hard and soft economic data out of Europe had been
“rather positive” this month, and that they show a reduced risk of a
double-dip recession. The economic fundamentals of the Eurozone are
“solid,” he said.

He was speaking only moments after Germany’s Ifo Institute said
that its July index of German business sentiment had jumped to the
highest level since the country’s reunification.

Paramo also reiterated that inflation expectations in the Eurozone
are well anchored to the ECB’s definition of price stability.

With regard to the stress test results, scheduled to be released at
1600 GMT (1200 EDT) today, Paramo said, “transparency can never be
negative.” He added: “I don’t have any doubt that the impact of the
stress tests is going to be very positive for the market, for the
supervisors and for the [banking] entities themselves.”

In the case of banks that fail the test, “the national authorities
are the ones who are responsible for saying, as a function of what they
find through the stress tests, what they are going to do,” he said.

He declined to comment on any stress test results, noting their
imminent publication.

He said the current crisis is “not a crisis of the euro, but rather
of confidence.” The single currency, he asserted, is a “credible global
currency because it is based on credible monetary policy.” He said the
ECB committment to fulfilling its primary mandate of maintaining price
stability is “credible.”

As a result, “inflation expectations in the medium- to long-term
are solidly anchored at levels compatible with price stability,” Paramo
added.

But the stability offered euro membership may have also contributed
to the current crisis, Paramo suggested.

“The low level of interest rates in a context of price stability
may have favored the indebtedness of some countries and reduced their
incentives to make progress in fiscal adjustment,” he argued.

“Moreover, the protection that the euro provides against external
disturbances may have fostered complacency on the part of the
governments of the most vulnerable countries, which have delayed
necessary structural reforms,” he said.

Paramo admonished “member countries that have not taken seriously
the responsibility to preserve macroeconomic and fiscal sustainability.”
And, he noted, “the transformation of the Greek case into a crisis of
European public debt shows clearly that the failures of a government
impose costs on all.”

Therefore, “in the current situation it is essential to adopt
credible budgetary adjustment plans to safeguard the confidence of the
citizens and of the markets in the sustainability of public finances
over the long term,” he said.

One of the principal lessons of the crisis is the need to
“reinforce the framework of multilateral surveillance to assure the
application of the Stability and Growth Pact.”

–David Barwick, +49-173-315-6588; dbarwick@marketnews.com

[TOPICS: M$$EC$,MGX$$$,MT$$$$,M$$CR$,M$X$$$]