BERLIN (MNI) – The European Central Bank’s current monetary policy
remains appropriate, and the central bank will continue to phase out its
special measures gradually, ECB Executive Board member Juergen Stark
said in remarks prepared for delivery on Friday.

While he acknowledged that the crisis in Europe is not yet over,
the central banker also pointed to risks if interest rates stay very low
for too long.

“Despite a string of positive signals in the recent past, the
crisis in the Eurozone is not yet over,” Stark said in his speech draft.

“The current monetary policy is still accommodative,” the Executive
Board member affirmed. “The orientation remains still appropriate from
today’s viewpoint,” he said.

“We see over the medium term neither inflation nor deflation risks.
Rather, price stability is assured over the medium term,” Stark
underlined.

Still, the ECB’s chief economist made clear that “if this
assessment should change, we would make adjustments.” In that regard,
the ECB’s view is that “a monetary policy which is accommodative with
very low interest rates over a time span that is ‘too long’ carries
potential dangers,” he cautioned.

Such dangers are, for example, negative incentives that can
interfere with the proper functioning of money markets, the central
banker said. Moreover, persistently low interest rates can also keep
market participants from undertaking the necessary adjustment processes,
he said. “Finally, one has to prevent the…formation of new bubbles in
financial markets,” he said.

Turning to the ECB’s extraordinary measures, Stark reaffirmed that
“the ECB will stick to its policy of gradually and gently phasing out
the special measures according to the situation.”

He stressed that “under no circumstances will the remaining
measures be maintained longer than necessary to assure stable prices in
the Eurozone in line with our definition of price stability.”

Stark reminded that the ECB’s asset purchase program is also of a
temporary nature. He reiterated that the program has no impact on the
central bank’s monetary policy because the additional liquidity is
completely reabsorbed.

Commenting on the Eurozone’s sovereign debt crisis, Stark reckoned
that “Greece is the right track from today’s point of view.” One needs
to be patient now, he said. “Naturally, there still exists the need for
substantial reforms in Greece,” he noted.

Stark once again stressed that “the loans for Greece are by no
means the start of a transfer union” in the Eurozone. “There will be no
such thing if the Eurozone is to remain what it is: a stability union,”
he argued.

The fact that government bond yields are diverging in the Eurozone
due to a reassessment of risks by investors “is in principle to be
welcomed, as long as fundamental data of public finances are
appropriately assessed and exaggerations are avoided,” Stark said.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

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