BAD GODESBERG, Germany (MNI) – The balance of risks to price
stability in the Eurozone can shift quite fast, European Central Bank
Executive Board member Juergen Stark said Wednesday.

Stark said that monetary authorities are very closely watching
commodity market developments and, though first-round effects from price
rises don’t move a central bank to action, the ECB will do whatever is
needed to avoid second-round effects from threatening price stability.

The recent climb in euro area inflation is due above all to energy
prices, he noted. Although a further increase in overall inflation is
likely in the short term, “driven by the energy prices,” the ECB does
not see risks to medium-term price stability emerging.

“But the balance of risks can change very quickly, so we must stay
very vigilant,” he added.

The ECB is “very watchful what happens on these [commodity] markets
and we will do everything to guarantee price stability in the future as
well,” he said.

The first-round effects already seen as a result of commodity price
rises do not prompt a central bank to act, he said. The issue rather is
making sure second-round effects do not emerge and threaten price
stability, he said.

“Gratifyingly, the world economy … has recovered,” he said. “The
world economy and the Eurozone have recovered clearly faster than
expected.”

“We have long since overcome this recession,” he asserted.

The global economy is benefitting in particular from high growth in
emerging markets, he said. “In these emerging markets … inflation is a
problem to be taken seriously.”

Turning to the special measures put in place by the ECB to combat
the crises, Stark emphasized that “one must find the way back out of
these measures.”

“Otherwise there is the danger that we lay the groundwork for
excesses,” he warned, adding “too much liquidity and too-low interest
rates for too long” could lead to false incentives for markets.

Therefore, he said, “these measures are temporary, justifiable only
so long as we have to deal with a special situation.”

The ECB’s program of sovereign debt purchases is not a form of
monetary financing, Stark insisted. “We give no credit to governments,”
he said.

“Everything that we have done, everything that we have decided as
the ECB Governing Council is based on monetary policy,” he said, noting
the importance of ensuring a functioning transmission mechanism.

Complaining of a failure of banks to change their mentality
appropriately, Stark said that “one has the feeling that the casino is
open again.”

The fiscal difficulties besetting Ireland and Greece are anything
but unique among advanced economies, Stark observed: “It’s just that the
focus of the markets is at the moment on Greece and Ireland.”

In addition to severe problems with the statistics in Greece, the
country simply “did not adjust to the conditions of the currency union,”
he said.

–Frankfurt bureau: +49-69-720142. email: dbarwick@marketnews.com

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