FRANKFURT (MNI) – The European monetary union is not becoming a
transfer union, ECB Executive Board member Juergen Stark insisted
Friday.

The central banker also explained to an audience at a panel
discussion here that it would be wrong to mistake the rescue plan for
Greece or the European Stabilization Facility for transfer mechanisms.

The central bank’s decision to purchase government bonds was taken
in extreme circumstances, Stark said, reiterating that the purchase
program is temporary in nature.

He also cautioned against using language or fueling sentiment in
the public that there is currently a “fundamental change” taking place
in the monetary union.

“When we talk about transfers — the monetary union now becoming
more a transfer union — this is not under discussion, this is not at
stake at all,” he insisted.

“Nobody should confuse what has been done with Greece. These are
loans. There is no transfers,” he underlined.

“And there are strict conditionalities,” Stark continued. “As in
the case of Greece, this would be the case in other countries with the
establishment of the European Stabilization Facility, based on strict
conditionality and only to provide loans.”

Stark reminded that the EU treaty prohibits countries from taking
on the liabilities of other member states, and that guarantees or
transfers are thus not permitted.

The Governing Council had to act “in extreme circumstances” when it
decided to purchase government bonds. “We were challenged by the markets
but this was an exceptional measure that we decided upon and…by
construction, this purchase is temporary in nature.”

“This was communicated again yesterday by the president of the ECB
in the press conference.”

“So we should be very careful what terms we use…not to stimulate
sentiment in the public that we are experiencing fundamental changes in
monetary union,” he stressed.

Stark insisted that a “clear dividing line” between monetary and
fiscal policy be respected.

He added that it is not the task of the central bank to play a role
in fiscal surveillance of member states. Rather, this is the job of the
European Commission, he said.

“We have to strengthen the role of the Commission or, within the
Commission to have an independent view to make an assessment of the
fiscal position of individual countries,” he said. “This is not the task
of the central bank [but rather] the Commission or another body.”

“When we were involved in the negotiations on the Greek program, we
said this is a credible, convincing and ambitious program,” and “we are
still fully convinced that this program will be implemented,” he said.
If Greece’s or any other country’s budget-cutting program failed, the
ECB would not see itself obligated to purchase that country’s bonds,
Stark insisted.

“This will not happen,” he said.

— Frankfurt bureau; +49-69-720142; email: frankfurt@marketnews.com —

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