–Adds Comments on Greece, Basel III Impact

HELSINKI (MNI) – Eurozone growth is likely to lose steam in the
months ahead, reflecting the trend in other large economies and the
unwinding of domestic stimulus measures and waning support from
restocking, ECB Governing Council member Erkki Liikanen said Thursday.

“The world economy continues to recover,” the Finnish central bank
head told parliament here.

“However, the pace of the recovery has varied. China’s economic
growth, which slowed down only slightly during the crisis, speeded up
among the leading economies supported by massive stimulus efforts.”

“This is reflected largely in the surrounding nations and world
economy,” he noted. “In US and Japan, the recovery started a bit later
during the year 2009. In the Eurozone, the turnaround was delayed until
this spring, when growth strengthened, especially in Germany.”

“During the summer we have seen signals from China, US and Japan
that the pace of the recovery is leveling off,” Liikanen said.

“The ECB expects this to happen in the Eurozone as well,” he
reminded. “Restocking and expansive fiscal policy supported the growth
in many countries until the beginning of this year. Now this support is
declining as restocking comes to an end and the focus moves from
stimulus to balancing public finances.”

“Although economic growth is generally expected to continue, the
trend is not without risks,” Liikanen stressed, reminding of the
sovereign debt crisis and the market turmoil this spring.

While central banks and governments around the world have continued
their efforts to support the economy, it is crucial that countries with
fiscal problems “follow strictly the programs prepared to rehabilitate
public finances and go forward with the structural reforms that will
support sustainable economic growth,” he stressed.

“The rehabilitation of the financial markets requires that the
trust among market participants be restored,” he said. The stress tests
conducted in Europe this summer gave transparent information about the
balance sheets and risk tolerance of European banks and helped to
restore trust.

Greece is going in right direction, Liikanen said. One problem the
country now faces is that the continuous news flow keeps doubts alive
that maintain pressure on Greek sovereign spreads.

Liikanen welcomed last week’s accord on the EU’s new Systemic Risk
Committee that will have “an important task in identifying risks that
are threatening the stability of European financial systems.”

“The most important project is the Basel III,” he said. “The reform
is important in increasing financial markets stability. The last years
have shown the costs of financial crises to economies.”

It is possible that the new Basel III requirements will increase
banks’ costs and loan margins, but it is not an automatic outcome, he
said. It is important to consider the burden put on banks, as this
affects very strongly their ability to lend, he noted.

–Antti Kerppola, +358 (0)41 528 2286; antti.kerppola@gmail.com

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