HELSINKI (MNI) – Publishing the results of bank stress tests could
bolster confidence in Europe’s financial sector, ECB Governing Council
member Erkki Liikanen said Thursday, echoing remarks by his fellow
Council member Christian Noyer.

Its clear that restoring the confidence requires that stress
tests are public, the governor of the Finnish central bank said in
presenting the bank’s monetary policy and economic outlook here.

It is still too soon to say how far-reaching and long-lasting the
effects of the crisis will be,” Liikanen said, judging that it was also
“too early to assess possibility of double-dip recession.

A sustainable return to growth will require the restoration of
confidence in governments, he said.

Adjustment of the public finances is essential, Liikanen said,
stressing the importance of cutting budget deficits, while reminding
that economic “growth must be ensured.”

Exit strategies should be planned,” he said, favoring coordination
among governments.

Consolidation measures by high-deficit countries are going “in the
right direction, he said, even if this has yet to be fully appreciated
by financial markets.

The Greek government has so far fulfilled all of the obligations”
demanded by the ECB and the IMF, he said. Spain is restructuring its
savings banks and financial sector and implementing appropriate stress
tests. Portugal is also reducing public spending, he noted.

The central banker dodged a question about ordinary citizens having
to pay for Greek spending through extraordinary central bank actions,
arguing that government bond purchases “are ordinary central bank

He reminded that all additional liquidity will removed in full
and that the Securities Market Programme does not represent a
relaxation of monetary policy. The ECB’s current monetary policy
stance is appropriate, he said.

In its monetary policy and economic outlook, the Finnish central
bank noted that the escalation of the Greek crisis into a sovereign debt
crisis in a number of countries had “increased the downside risks to
growth, above all in the euro area, but also worldwide,” casting a
“shadow over the outlook for the economy.

“Despite large-scale intervention by EU countries and the
Eurosystem, the markets continue to be nervous and there is increased
lack of confidence on the interbank market,” the report observed.

If the crisis were to continue “for a prolonged period, it could
seriously hamper the recovery currently under way,” the bank warned.

Accelerated fiscal consolidation “could also contribute to slower
growth” in the short term, it conceded.

“The longer-term impact will, however, be different, as sustainable
growth is not possible without healthy public finances,” it said.
“Moreover, the impact of the crisis at the global level will be
moderated by the signs of continued brisk growth in Asia plus the
encouraging signals of a return to internally generated growth in the
United States.”

“Inflation has continued to be moderate in most major economic
regions,” it said. “Although rising energy prices added to the spring
inflation figures, base inflation excluding energy prices is running at
around 1% in both the euro area and the United States.”

–Antti Kerppola, +358 (0)41 528 2286;

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