FRANKFURT (MNI) – The spike in the European Central Bank’s
overnight lending last week was not a long-term phenomenon and mainly
due to developments in Ireland, ECB Executive Board member Juergen Stark
said Monday.

The ECB stands ready to act “decisively” and “immediately” if need
be, the central banker told an audience at the Institute for Monetary
and Financial Stability here.

Asked by reporters afterwards if the recent spike in overnight
lending gave him pause on the bank’s ability to unwind its monetary
policy, Stark sharply retorted, “I don’t think so.”

The spike, which saw overnight borrowing skyrocket late last week
to over E16 billion, well above a post-crisis average of E100 million,
“was due to special factors, it was a short-lived event, very
short-lived event, mainly due to events in Ireland,” he explained.

Though the details of what instruments the European Financial
Stability Facility or the future stability mechanism will have at its
disposal are “under discussion,” the Governing Council “is of the view
that it should be possible for EFSF as well as the ESM to purchase bonds
on the secondary market,” Stark said.

Asked by MNI whether he was concerned about asset price bubbles
emerging in Germany, specifically in real estate, Stark remarked that
“data available don’t point to the risk of a housing bubble.”

Queried if the ECB could potentially get into a situation similar
to the Bank of Japan, where it allegedly could not raise interest rates
for fear of making a state go insolvent due its high indebtedness, Stark
said: “We will do what we have to do. This is the simple message that
our president always conveys. At the ECB, we are prepared to act
decisively and immediately, if needed.”

He then repeated his plea for governments to keep their budgets
position under control, lest the fiscal situation become unsustainable.

Stark stressed that public finance problems in some states do “not
influence our considerations and our deliberations of monetary policy.”

–Frankfurt bureau, +49-69-720142, frankfurt@marketnews.com

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