FRANKFURT (MNI) – The European Central Bank will not contribute to
excessive global monetary policy accommodation or participate in
‘currency dumping’, Executive Board member Juergen Stark said Wednesday.

The imbalance of forex accumulation in emerging markets and debt
accumulation in advanced economies is leading to “a massive distortion
of global forex rate constellations and international trade flows,” he
said, as well as to “distortions in capital costs and in the
availability of liquidity in the global economy.”

The danger that “worldwide excessively accommodative” monetary
policy could aggravate these trends “has to be taken seriously,” he
said, calling this area one of “a completely new potential for danger”
and noting that severe protectionism could be a consequence.

“But the ECB will not participate in ‘currency dumping'; instead,
the ECB has begun to withdraw the resolute loosening of monetary policy
that had been necessary at the climax of the crisis,” he said.

Stark noted that structural problems that had driven the build-up
of global imbalances that contributed to the financial crisis had not
been resolved.

Instead, IMF forecasts suggest that “the process of unwinding of
global imbalances, measured by the balances of payments of the major
economies, has already come to a halt and is about to reverse,” he said.

Public debt is at record levels in industrialized nations and
private debt has subsided only “insignificantly,” he observed. Emerging
markets have accumulated forex reserves to beyond the level of before
the crisis “and in many cases beyond any sensible degree,” he charged.

“The costs and risks are immense for the global economy as well as
from the perspective of domestic economies,” he warned.

In the same tone, Stark criticized the “primacy of currency policy”
that in “some important emerging markets” has left the respective
central bank’s room to maneuver “very limited,” causing “significant”
costs related to the resulting volatility.

Major industrialized economies must above all stabilize public
indebtedness and “create the basis for a resounding and sustained
consolidation of public finances,” he urged.

“At the same time, the years of extremely accommodatively oriented
monetary policy threatens for its part to intensify existing tensions
and spawn new imbalances,” he cautioned.

“The risk of price bubbles in the financial markets, but in
important raw materials and in the real economy as well, as in the real
estate sector for example, must not be underestimated,” he said.

–Frankfurt newsroom +49 69 72 01 42; e-mail: frankfurt@marketnews.com

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