–Adds Comments From Discussion On Money Supply, Portugal

BERLIN (MNI) – ECB Executive Board member Peter Praet said Monday
that European monetary authorities need to stay the course and come up
for solutions to unsolved problems, such as how to recapitalize large
banks.

The ECB has to continue earning the confidence it has acquired,
Praet said in a speech at the Konrad-Adenauer Foundation, a group close
to the governing Christian Democratic Union party.

“Risks that monetary policy may be overburdened in the future need
to be counteracted in the future,” he said.

Praet called attention to a lack of European crisis management and
a resolution framework for systemically important banks and said
there are as yet no funds earmarked or clear provisions to help in the
recapitalization of big banks.

The issue of banks that are too big to fail has only begun to be
addressed, Praet said, referring repeatedly to the Lehman Brothers
crisis and the need to deal with large, undercapitalized institutions.

Praet also stressed the need to continue stability policies and
urged Eurozone governments to rapidly ratify the new Fiscal Compact on
budgetary discipline and transpose it into national legislation.

EMU was “designed without a proper framework to manage a sovereign
debt crisis,” he said. While the matter has been addressed via the
firewalls of the EFSF and the forthcoming European Stability Mechanism,
“some further steps are still needed,” he said.

The central banker was cautiously optimistic about Eurozone
economic prospects: “Overall, I think there are signs of stabilization
that give us confidence about the future.”

In the follow-up discussion, Praet warned against monetarization of
sovereign debt, arguing that you pay it back in the long run. For the
moment, money supply trends remain extremely weak, despite the modest
pick-up in January, he said.

The central banker said there had been “quite impressive” progress
on reforms in Portugal. “Of course the challenges are enormous, but its
going in a very good direction,” he said.

[TOPICS: M$$EC$,M$X$$$,MGX$$$,M$$CR$,M$G$$$]