–Adds quotes on troubled EMU countries to story sent at 8:03 GMT

BERLIN (MNI) – The global financial crisis is not yet over and
setbacks in financial markets cannot be ruled out, ECB Governing Council
member Axel Weber said in remarks prepared for delivery on Wednesday.

“Even though financial markets have calmed again they are still
marked by heightened uncertainties and are not immune to setbacks,”
Weber, who heads Germany’s Bundesbank, reasoned.

However, the economy has developed better than expected at the
start of the year, he observed. “Thus, I do not share fears of a double
dip recession or a deflation,” he said.

Instead, Weber told his audience in Frankfurt that he expects
“moderate growth and price stability” at least over the monetary policy
relevant horizon. However, he warned not to get carried away “and
proclaim the end of the crisis and return to business as usual.”

Weber reckoned that the “the direct and indirect consequences [of
the crisis] will occupy us still for years,” noting that there exists a
large need for reform in the financial sector.

“[We] want to finalize Basel plans this weekend,” Weber said,
adding that he is confident that central bankers and supervisors will
come to an agreement on new capital requirements for banks in the
so-called Basel III accord. He once again dismissed private sector
warnings that new regulation will weigh on the sector’s efficiency.

The German Banking Association warned Monday that the new
standards could require Germany’s banks to raise an additional E105
billion in fresh capital, and could crimp lending and overall economic
activity.

But Weber said stiffer capital rules for banks won’t hurt the
economy, pointing out that there are generous transitional periods
planned before the new rules kick in fully. “The new rules will come and
they will increase the stability of banks,” he predicted.

Weber, praised the German government’s recent bank insolvency
draft, which would allow an orderly unwinding of troubled
systemically-relevant banks. “Overall, I welcome and support this
project of the federal government,” he stressed.

Yet, in order to avoid distortion of competition, a coordinated EU
approach would be desirable, Weber added.

Turning to sovereign debt issues within Europe, Weber underscored
that “public debt is a big problem, [but] I would like to warn against
[talking about] the topic of countries going bankrupt.” He said “there
were discussions here about a few peripheral countries in Europe.”
However, those discussions were not about “the failure of a state, but
rather higher refinancing costs.”

Weber emphasized that he believes the steps taken by troubled
countries, along with those of the IMF, were good steps in the right
direction.

“What is certainly true is that these countries for the foreseeable
future, and definitely not only for the next three years, will be
dependent on financial support within Europe. We will, however, also see
that these countries still have very good access to the capital
markets,” Weber said.

These countries are on the right path, but still have a long way to
go, he said.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

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