WIESBADEN, Germany (MNI) – Eurozone growth in the second half of
this year will slow following the “astounding” performance in the second
quarter, European Central Bank Executive Board member Juergen Stark
predicted Tuesday.

“It is clear that we are pursuing a loose monetary policy,” but one
that is both “accommodative” and “appropriate,” the ECB’s chief
economist said in an evening lecture in the auditorium of a museum here.

Still, there are risks of “negative side-effect” if interest rates
are kept too low for too long, Stark reminded.

At present there are neither inflationary nor deflationary risks in
the Eurozone and “inflation expectations are anchored,” Stark stressed.

Asked about the next step in the gradual removal of non-standard
measures, Stark responded, “We are here fully on the path of the
so-called phasing out.” But in order “to maintain full flexibility,
we’ve already decided to extend the three-month operations and to keep
the full-allotment procedure.”

Turning to the health of the common currency, Stark emphasized that
“the euro is a stable and reliable currency” that is internationally
recognized as a reserve currency — more so even than its legacy
currencies were.

The currency area, however, “urgently” needs a change to its
institutional framework, including stronger budgetary discipline, he
said.

The current situation of public budgets in European Union countries
“remains precarious,” he warned. “We remain in the crisis.”

Queried about concrete proposals being debated at the moment to
strengthen budgetary surveillance within the currency zone, Stark
declined to comment on the views of individual countries in this area,
noting that negotiations are still going on.

“The currency union was not intended to be a transfer union … and
that must not change,” he said when asked about the role of “solidarity”
in the currency union.

Stark said he was “open” to the idea of a European rating agency,
but conceded that problems remain in creating one.

–Frankfurt bureau; +49-69-720142; tbuell@marketnews.com

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