FRANKFURT (MNI) – There are some early signs of a recovery in the
Eurozone, but more fundamental improvement is needed before one can
speak of a turning point in the crisis, European Central Bank Executive
Board member Peter Praet said in an interview to be published Wednesday
by Germany’s Handelsblatt.

“We are seeing the first signs of a recovery,” Praet told the
business daily, which released the interview late Tuesday. Among the
favorable signs, he cited improvements in market sentiment and in the
fiscal balances of Spain and Italy. Banks are also turning less to the
ECB for refinancing needs, he noted.

Asked if that meant the Eurozone could return to growth in 2013,
Praet urged caution. There is still “no self-supporting recovery – no
such dynamic in the private sector,” he said. He observed that banks and
non-financial firms are still hoarding liquidity.

Praet stressed that the ECB would continue with its non-standard
policy measures as long as needed to ensure price stability. “Should our
measures present a risk for price stability, we can pull them back at
any time,” he said. “At this time, nothing points to such risks.”

Praet, the ECB’s chief economist, said non-standard measures would
likely have to remain in place until there were clearer signs that
liquidity being pumped into the market was filtering through to the real
economy.

There has been a “big change” in market sentiment since July, “but
to speak of a turning point, we would have to see more fundamental
improvements,” he said.

Praet said he was skeptical of the International Monetary Fund’s
call for more short-term measures to stimulate growth, arguing that the
Eurozone debt crisis remains primarily one of trust.

“The necessary corrections to overly high deficits can in the short
term lead to a slowing economy. But the main problem is the lack of
trust. This will not improve if we now delay repairs to government
budgets,” Praet told the paper.

Praet said Eurozone countries are making “good progress” in
restoring competitive balance to the Eurozone, while the announcement of
the ECB’s OMT bond-buying program has helped calm financial markets.

“We have broken through the self-destructive spiral of fear,” he
said.

Praet also said the ECB needs a “clear, detailed business plan” to
keep decision-making in its future Eurozone bank supervisory role
separate from monetary policy. He stressed there will be “no change” to
the ECB’s price stability mandate.

Praet said there should be a bank supervision board that operates
below the level of the ECB Governing Council and consists of a member
from every Eurozone country as well as an unspecified number of
representatives from the Executive Board.

He argued that monetary policy is dependent on effective bank
supervision to ensure the health of the Eurozone’s financial sector. The
ECB’s role could help improve the flow of information within the
currency bloc, he said.

Asked about rumours that Bundesbank board member Sabine
Lautenschlaeger could be in line to head the new supervisory board,
Praet said he was “aware” of such speculation. He added: “I have
respected her for many years.”

Praet also suggested he was skeptical of releasing the minutes of
the ECB’s Governing Council meetings.

“I fully agree that we must be more transparent…but I don’t think
much of making clear who said exactly what in which meeting,” he said.
“We need trust, but we also need discipline.”

— Frankfurt bureau: +49 69 720 142; email: ccermak@mni-news.com —

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