–Full Version: Updates, Adds Quotes To 1252 GMT Version
–Euro Break Up Very Unlikely; But More Likely Than At Any Point In Past
–Euro Zone Likely To Have “Very Slow” Growth For Next Several Years

LONDON (MNI) – Bank of England Monetary Policy Committee Adam Posen
says that euro zone government’s efforts to rein in their deficits will
likely lead to “very slow” growth in the single currency bloc for the
next several years and euro zone weakness poses a “huge risk” to the
UK.

Posen, in a National Public Radio Interview, said the weakness of
the euro may not reflect market concerns over the credibility of fiscal
consolidation plans, but rather the recognition fiscal tightening will
result in anaemic euro zone growth.

On the euro’s weakness, Posen said “This isn’t necessarily a
negative verdict on the stabilisation effort. It is a negative verdict
on the reality that growth is likely going to be very slow in much of
the euro area for the next several years.”

He downplayed the likely damage this would do to US growth, but
warned of the threat euro zone woes pose to the UK.

For the US, “the initial impact from Europe is not necessarily
going to be that bad,” he said, with the US economy benefiting from
“safe haven” money flows.

“In the longer term, more than 12 months out say … the fact that
the second largest global economy, the euro zone, is contracting or
stagnant will not help,” he added.

The UK economy is, however, very vulnerable to euro zone weakness.

“This is a huge risk to the UK. It’s just simply the nature of
things – 60% of our trade is with the euro area,” he said.

“We view this as a very real risk. We are small compared to the
euro area,” he said.

“If the euro area goes down that does have a huge impact on us and
there is not much we can do about it,” he said.

NPR said Posen was not troubled by recent sterling’s recent
decline.

Asked about former Fed chairman Paul Volcker’s view the euro could
disintegrate, Posen said Volcker was “looking at a worst case scenario,
which I don’t think is very likely.”

“You have to say it is certainly more likely now than it ever was
at any point in the previous 11 years (ie. since its creation),” he
added.

He mocked the alarmism triggered by currency moves and the euro’s
recent decline.

“Remember it was only two years ago, or so, people were saying ‘Oh
my God, the euro is going to displace the dollar and look, super models
are going to be paid in euros, not in dollars’,” he said.

“It is just good to keep some perspective. Currencies go up,
currencies go down. The fundamental thing about Europe is that the euro
area is going to be growing slowly the next few years. That is the big
news and that is the sad part,” Posen said.

–London newsroom: 4420 7 862 7492; email:
dthomas@marketnews.com/drobinson@marketnews.com

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