–Adds Further Details, Quotes

SHANGHAI (MNI) – Eurozone inflation will stay below the European
Central Bank’s 2% medium- to long-term goal in the coming years, while
signals of a self-sustaining Eurozone recovery suggest that the ECB’s
gradual adjustment of its monetary policy stance can continue, Governing
Council member Yves Mersch said Tuesday.

Mersch, who was briefing at a conference here, noted the ECB’s
inflation goal but added, “we will see inflation will be around 1.5% or
maybe slightly higher in the years to come.”

The most recent forecasts by the ECB staff, published on September
2, project HICP inflation of 1.6% this year, edging up slightly to 1.7%
next year. However, the Governing Council does not always endorse the
staff forecasts and sometimes even differs with them.

Mersch also said that the correction of fiscal imbalances in the
eurozone is essential if household confidence — a precondition for
growth and job creation– is to be restored, and 2011 will see a
reflection of this.

“Governments must therefore send a clear message to markets — a
message of determination and commitment to sound macroeconomic policies
and fiscal sustainability,” he said.

Mersch also defended the euro as a “credible” currency. He said
that predictions of the single currency’s demise were wrong, but also
warned that its struggles are not over.

“The current situation is bad, but it’s nevertheless recovering,”
he said, before adding that “there is no room for complacency about the
euro…It’s too early to claim victory for the euro.”

Mersch said that the recovery has gained momentum following the
global financial crisis. The crisis itself slashed inflation, he noted,
but he said that recent price developments have normalized after
inflation was pushed into negative territory for a few months.

Growth is moderating in the current half of the year, though signs
of a self-sustaining recovery are also emerging, Mersch said.

“I am confident that the positive underlying momentum is
increasingly broader based and signals a self-sustaining recovery in the
Euro area,” Mersch said.

“In my view, therefore, inside the Euro area the gradual pace of
adjustment of the monetary policy stance, of the overall provision of
liquidity and of its allotment modes can continue.”

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