PARIS (MNI) – The European Central Bank is considering raising
interest rates again because real rates should not be negative as they
are now, ECB Executive Board member Juergen Stark said in an Italian
newspaper interview pre-released on Wednesday.

Stark, the ECB’s chief economist, also opened the door to a
voluntary rollover of Greek debt by private creditors, possibly clearing
the way for an agreement to provide Athens with a new loan package.

Monetary policymakers did not envision a “structural slowdown” of
the Eurozone economy, “and we expect the recovery to continue, though
less dependent on fiscal and monetary stimulus,” Stark told the business
daily Il Sole 24 Ore.

“In this economic context it is not appropriate that real
short-term interest rates should be negative,” he added.

EMU HICP inflation was 2.7% on an annual basis in May, compared
with the ECB’s policy rate of 1.25%.

“Subsequent adjustments of interest rates are under consideration,”
Stark told the paper. “Their timing will depend on the economic and
monetary data.

Stark reiterated his opposition to any restructuring of Greek debt,
but suggested that a voluntary rollover of maturing bonds by the private
banks holding them could be acceptable, following the so-called “Vienna
Initiative,” which was applied to Eastern European sovereign debt in
2008-2009.

“If this possibility is not perceived as a sovereign default or
partial default, then in could prove itself to be a way to involve the
private sector in the financing of Greece,” he said.

Stark’s remarks are significant, because it marks a de facto
retreat from the ECB’s position, argued in recent days with extreme
vehemence, that a haircut on Greek debt or a maturity extension of any
kind could have dire effects on Greece’s banking sector and the Eurozone
more broadly.

Recent media reports have suggested that EU political leaders are
nearing an agreement for a new loan package for Greece, worth about E60
billion, that would enable Athens to meet a funding shortfall now
expected for 2012 and 2013.

One of the sticking points in reaching such a deal has been the
ECB’s fierce opposition to a demand by Germany that private creditors
contribute to the package.

–Paris newsroom, +313-42-71-55-40; bwolfson@marketnews.com

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