— Adds Detail To Version Transmitted At 1045BST
LONDON (MNI) – Bank of England Monetary Committee Member Adam Posen
has said that he does not expect the euro to break up as a result of the
sovereign debt crisis currently sweeping the continent.
“I am assuming the euro is here to stay,” Posen said in a speech at
the London School of Economics.
“The question is – how miserable are we going to make people,” he
added.
The crisis in the euro zone was not a fiscal one but one of
economic imbalances, he added.
Posen criticised the new fiscal compact agreed by EU leaders,
saying that this was too skewed towards fiscal consolidation.
“At its core it is an imbalance crisis not a fiscal crisis,” Posen
said.
Measures and institutions were also needed to lift demand in the
euro core, Posen said.
Posen also presented the results of research which showed that
fiscal consolidation was more likely to succeed if the monetary
accommodation which accompanied it was more aggressive.
Posen said that history showed it was also more optimal if monetary
easing preceded fiscal consolidation.
In other comments, Posen insisted that exit from QE would not be
“operationally difficult”.
The process of selling assets would be transparent and would not
interfere with bond markets.
Posen said there was no question of the BOE “dumping” its gilts
into the markets in a single day. He suggested there would be a steady
programme of orderly, properly sequenced sales when the time came.
Touching on the issue of central bank credibility, Posen stressed
that it was more important for the bank to ‘do the right thing’ than
think about appearances.
“I am very the BOE has not got caught up in keeping appearances and
has done the right things”
–London newsroom: 4420 7 862 7492; email: dthomas@marketnews.com
[TOPICS: M$B$$$,M$$BE$]
