By Johanna Treeck

WASHINGTON (MNI) – Economic growth in the Eurozone will likely be
less positive in the second half than previously expected there and a
double-dip in the mature world can no longer be excluded, European
Central Bank Executive Board Member Juergen Stark said Saturday.

“The pace of economic growth has slowed down globally and this is
also true for the Eurozone,” Stark observed. “It is more likely now that
the second half of 2011 will be less positive than previously expected.”

“The key question is whether the slowdown is a transitory
phenomenon or a more will it lead to a double dip,” Stark said “There is
“extremely high uncertainty” so that “we have to think in different
scenarios.”

On interest rates, Stark made his view abundantly clear: “The
monetary policy stance is very accommodative all over the world. Not
only in this country, but also in continental Europe, in the United
Kingdom, in Japan.”

“Monetary policy cannot substitute for the need for structural
reforms,” he admonished. “Not at all. This would really overburden”
monetary policy.

The ECB has stabilized inflation expectations and Stark pronounced
himself “fully confident that the Governing Council will manage this” in
the future as well. He reminded that “inflation is not an instrument to
deal with debt.”

Stark also warned that “the global economy is still massively
over-leveraged.” He projected that “with this massive overleveraging we
are facing many years until … adjustment progress will be completed.”

Referring to the banking sector, Stark warned that the one of the
key causes of the crisis has “not be addressed appropriately.”

“We have not succeeded in implementing the G20 agenda in full.
Still, a lot of work has to be done,” he said, adding that this includes
the restructuring and re-ordering of the sector in combination with the
recapitalization of the banking system.

Turning to IMF programs in the Eurozone, Stark said that contrary
to Greece, Ireland and Portugal are successfully implementing their
adjustment programs.

“What we have experience so far with the EU/IMF programs, we have
to make a distinction between these three countries,” Stark said during
an IFF conference.

“Ireland is on track, implementing the program one-to-one. The same
can be said on Portugal,” he said.

“On Greece, more needs to be done and it is not a surprise that
because of the lack of implementation … the Troika left Greece three
weeks ago,” Stark noted.

“Greece is running out of time,” Stark warned, although “they still
think that they have plenty of time.”

The Greek authorities seem to be under the impression “that
whatever they do, even if they are off track with the program, they will
get the money.”

But in fact the next tranche will be disbursed only if
conditionality is met, he said.

Stark called into question the likelihood of Greek success, arguing
that “debt sustainability is key for each and every IMF program. And at
the end of this IMF program period, debt should be sustainable …
otherwise, the program will fail.”

“Why is the Irish program successful?” he asked rhetorically. “Why
does the Portuguese program seem to be successful so far? Because there
is political agreement across the political parties” and this results in
a broad social consensus.

“And this consensus seems not to be there in Greece because there
is no consensus among the major parties,” he said.

Stark observed that privatization had not been part of the initial
program for Greece, although clearly “there is potential” in privatizing
property owned by the state in this “asset-rich country.”

“It should have been” part of the initial program, he said. “But in
spring of this year, the prime minister of Greece presented this idea to
the heads of state and government to launch a privatization program …
and then I think you can imagine that the leaders immediately said, ‘Ok,
fine, this will make a major contribution to your debt sustainability.'”

However, Stark said, “now we know the situation has changed over
the last half year, the market situation has changed” and E50 billion in
proceeds by 2015 no longer seems feasible.

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

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