–Adds Comments On Euro’s Protection, Tougher Deficit Rules

VIENNA (MNI) – The Eurozone is not in a currency crisis, but rather
in a crisis of public finances, European Central Bank Executive Board
member Juergen Stark reiterated Friday.

“I am not worried about the future of the euro,” Stark said in a
speech for delivery at a conference here. “The euro is and remains our
common stable currency.”

“It is not, as many commentators suggest, a crisis of the euro,” he
said. “The crisis results much more from a crisis of government finances
and insufficient economic reforms in the Eurozone.”

“The success of the euro in assuring stability is not in question,”
he said. “As in the average over the past 11.5 years, the inflation rate
is in line with price stability.”

However, while the euro has shielded member countries from an even
more severe economic crisis, it also protected high-deficit governments
before the crisis erupted from the sanctions of financial markets, Stark
noted.

“We must therefore ask critically whether the protection of the
euro has not contributed to the fact that unprecedented imbalances
emerged in some countries,” he asserted.

“Not only was the Stability and Growth Pact not applied in the
fiscal policy sphere, but its rules were weakened,” he said. “Potential
budget sinners naturally had no incentive to impose sanctions on other
budget sinners for violating the rules.”

“We, the central banks of the Eurosystem, all criticized sharply
these ominous mistakes at the time,” Stark reminded. “The dramatic
economic and financial consequences of these decisions have not merely
confirmed our worst fears, but surpassed them.”

“Day for day we can see the fundamental dangers these debts
represent not only for growth, employment and economic stability, but
also for political and social cohesion,” he said.

It will not be enough merely to take measures to reduce new
borrowing, Stark said. Instead, an overhaul of Europe’s institutional
framework is urgently needed to coordinate structural reforms and
guarantee public financing, including more automatic sanctions.

“The current level of debt cannot be reduced [simply] by respecting
the new borrowing ceiling of 3%” of GDP, he said. “Therefore, we should
not allow any further deficits once the debt ceiling of 60% is no longer
respected.”

“We are in the deepest crisis in Europe since the end of the Second
World War,” Stark reminded. “However, European integration has always
found new inspiration after setbacks and crises; otherwise we would not
have today a common market and a single currency.”

“European politicians have recognized that the time has come to
take action,” he said. “Therefore I am very confident that Europe will
emerge from the crisis strengthened, with tougher rules and reformed
institutions.”

–Paris newsroom +331 4271 5540; e-mail: stephen@marketnews.com

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