BERLIN (MNI) – Monetary policy globally is very accommodative and
it is not appropriate at this point, European Central Bank Executive
Board member Juergen Stark said Monday.

Stark told the audience at a conference here that the Eurozone was
experiencing a self-sustaining recovery but faced risks such as the lack
of an equivalent upturn in the U.S.

He put the burden on Greece for the lion’s share of finding a way
out of the country’s fiscal troubles. He also suggested that fellow
board member Lorenzo Bini Smaghi might not intend to resign his
position.

“Monetary policy…is globally still very expansive,” Stark
asserted. “Very expansive in the sense that the short-term real interest
rates in the U.S.A., the Asian emerging markets and ultimately the euro
area as well…are negative, or in the emerging markets at least close
to zero.”

If such low borrowing costs were proper during the worst of the
crisis, he said, “today this is no longer appropriate” and, in
conjunction with “very expansive” fiscal policies, can lead to new
imbalances.

“The global economy has emerged from the recession more rapidly
than expected, but with considerable differences in speed,” Stark said.
“We have booming economies in the emerging markets, we have an economic
dynamic in the United States that is not yet self-sustaining, but in
Europe and the Eurozone we have a self-sustaining economic upturn.”

The sovereign debt crisis of the periphery does not change this
fact, Stark said. “Seen on balance, the euro area has left behind the
economic and financial crisis relatively quickly” and shown “a
relatively solid economic development,” with growth this year and next
to be above potential despite risks that include oil prices;
uncertainties about U.S. growth and fiscal affairs; and “signs of
overheating in some regions and sectors in Asia.”

Stark dismissed those who consider the fiscal adjustment programs
imposed on Greece, Portugal and Ireland to be “too rigorous” or think
that they place excessive demands on domestic policymakers or the
public. Earlier adjustment programs imposed on emerging markets were
“much more severe,” he noted.

He criticized recent remarks by the new Greek finance minister to
the effect that Greece would agree to the new measures and then would
see about improving the conditions of aid. He said those comments were
“not necessarily utterances…with which one bolsters trust in Europe or
internationally.”

“The responsibility for the developments in the coming days and
weeks lies exclusively with Greece,” Stark insisted. “Greece has a
program, the program must be implemented. Greece has to make a
contribution in the form of privatization.”

Privatizing assets held by the state would be a “very decisive”
contribution, he added.

For the ECB, such determined implementation of the program is “the
only way” and is the key to further assistance, Stark insisted. Greece
must “fully modernize, fully restructure” its economy. In doing so it
will need “broad technical support, technical guidance in many areas,”
and the process cannot take place overnight or without pain, he said.

If China decides to buy Greek debt, “then that is the decision of
the Chinese leadership,” he said in response to a question following his
speech. “We know that China in other countries as well buys government
bonds. What significance does it have, for example, that China buys U.S.
Treasuries in large quantities?”

“I don’t see China as the saviour of the euro,” he continued. “It
can’t be the saviour of the euro, in the first place since the euro
doesn’t need to be rescued.”

In other comments, Stark said that doubt about the ECB’s autonomy
is not appropriate. “We have demonstrated our independence — not only
during the last 12 years, but in particular during the crisis.”

The ECB has assumed risk, he conceded, but “like every other
central bank, like the Federal Reserve, like the Bank of England.” The
quantity of risky assets held by the ECB is “manageable,” however, and
“it speaks for itself that for more than a quarter of a year we have not
purchased any more government bonds.”

The bond-buying program, he stressed, was decided by the ECB “in
complete independence” and “there was no political pressure.”

Responding to a question about recent attempts by Italy to get
Italian Executive Board member Lorenzo Bini Smaghi to resign and make
way for a French replacement after Bank of Italy Governor Mario Draghi
becomes ECB president, Stark argued that “it is not written anywhere
that two representatives of one and the same nationality can’t be on the
board of the ECB.”

“And as far as I know — I haven’t spoken about it with my
colleague in detail — but I know that he has not signaled that he plans
to resign, and he has not resigned, either,” Stark added with reference
to Bini Smaghi.

Although “in Europe we are still in the middle of the crisis,” he
said, “it is not a currency crisis, it is not a crisis of the euro.”

The ECB has delivered on its price-stability mandate and “the euro
is a stable currency, inwardly and outwardly,” Stark said.

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

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