MUNICH, Germany (MNI) – The European Central Bank is very likely to
raise interest rates in the Eurozone again, ECB Executive Board member
Juergen Stark said Monday.
In a speech at the Ifo institute here, Stark said that the ECB’s
monetary policy remains accommodative even after the 25 basis point rate
hike in April.
“We see further upward risks for price stability,” Stark stressed,
reminding that ECB President Jean-Claude Trichet had said the central
bank is in a position of “strong vigilance.”
Strong vigilance is “a code word … which signals that with high
probability interest rates will be increased, if necessary,” the central
banker explained.
Stark reaffirmed that it is dangerous for rates to stay too low for
too long.
The risks that the ECB has taken in its balance sheet to fight the
crisis are “big, but manageable,” the Executive Board member said.
“Comparing the ECB to a bad bank is totally wrong,” he reckoned.
Europe is currently in its deepest crisis since 1929, Stark
reminded. Yet “it is not a crisis of the euro, not a currency crisis.”
Concerning a second rescue package for Greece, the ECB does not
oppose voluntary private sector involvement, Stark reaffirmed. But he
warned that anything beyond that could be seen as a partial default by
the markets.
In the end, this would wipe out the proprietary capital of Greek
banks and the Greek state would probably not be in a position to
recapitalize the banks. Thus, private sector involvement in the Greek
rescue risks costing European taxpayers more than no such involvement,
he reasoned.
–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com
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