HAMBURG, Germany (MNI) – Given the economic environment in the
Eurozone, official interest rates are too low, European Central Bank
Executive Board member Juergen Stark said Monday.
“The financial and economic crisis lies behind us,” Stark asserted
in a speech at the Bundesbank’s local branch here. With the economic
recovery now self-sustaining, the ECB’s refinancing rate of 1.25% “is no
longer appropriate.”
“We are strongly vigilant,” he made clear, and under consideration
of all available information, the ECB’s rate hike of 25 basis points in
April “will not be the only one.”
“We don’t talk of ‘normalization’ [of interest rates], as we have
no target, we have no adjustment path,” Stark explained. The ECB will
continue to unwind its special measures as appropriate, he said. It has
a clear mandate and has delivered on it, he affirmed.
Not only in Europe but also “globally, monetary policy is too lax,
too accommodative,” he charged, pointing out that short-term real
interest rates are negative in the U.S., the U.K. and the Eurozone and
very close to zero in many emerging markets.
Leaving interest rates too low for too long is dangerous, as this
can lead to incorrect risk-pricing, Stark said, noting that the negative
side-effects of loose monetary policy can already be seen in some
emerging markets.
Asked about the ECB’s purchases of government bonds on secondary
markets, Stark observed again that it has been more than three months
since the Eurosystem last intervened and reiterated that “no excessive
risks” for the ECB have resulted.
Stark said a Greek debt default would present the ECB with a “new,
very difficult situation,” since the central bank “on the basis of our
statutes, on the basis of our rules, could no longer accept Greek
paper.”
–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com
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