–Adds Comments On ECB Bond Purchases, Fiscal Rules, EFSF, Estonia

HELSINKI (MNI) – The Eurozone is not facing a significant price
stability risk, with inflation expected to stay beneath the ECB’s limit
this year and next, European Central Bank Governing Council member Erkki
Liikanen said Wednesday.

“There is no large inflationary pressure in the Eurozone,” Liikanen
said at a press conference where he presented the December Bulletin of
the Bank Finland, which he heads. He noted that EMU inflation is
currently running around 2% and that according to the latest ECB staff
forecasts it is expected to decline to about 1.5% in 2011. The ECB’s
inflation goal is below but near 2%.

Liikanen renewed the call on countries with managed exchange
regimes to move towards more flexible currency policies. “It is…normal
that the discussion about flexible currencies has been active. These
would help to balance the economic situation,” he said.

He also downplayed the idea that the ECB is taking too much risk
onto its balance sheet with emergency measures that include unlimited
liquidity allotment at refinancing tenders and purchases of government
debt, in large part from peripheral EMU countries considered by markets
— and rating agencies — to be at the highest risk for default.

“At the ECB we take the measures that we find appropriate,” he said
in response to a question about the central bank’s exposure.

Liikanen reiterated the words of ECB President Jean-Claude Trichet,
saying that the bank’s bond purchasing program is “ongoing,” and that
its aim — as well as the aim of other temporary measures — is “always
to facilitate the monetary policy.”

He said that while markets have started to function better during
the last two months, “there are still banks that are depending on ECB
funding. This can’t be a long-term solution.”

National governments have to solve their own sovereign debt
problems, Liikanen said. “The problem is that their spending is larger
than their revenues.” He added that “it’s not the responsibility of the
central bank to make” the decisions that governments need to make.

The Bank of Finland governor stressed the need for greater
surveillance and stiffer enforcement of the EU’s fiscal and economic
rules. “It’s clear that the sanction systems have to be clear and
automatic and they won’t be changed when the economic situation
improves,” he said, echoing the comments of his Governing Council
colleagues.

He declined to get dragged into the debate over whether financial
resources for the European Financial Stability, currently slated at E440
billion, should be increased. “The 440 billion euros is the ceiling that
has been agreed on. I will not introduce any new figures,” Liikanen
said. But perhaps giving a small hint as to where his sympathies lay, he
noted that the “the actual loans won’t be more than about half of the
total sum.”

Liikanen also noted that inflation differentials within the
Eurozone have contributed to a competitiveness gap between the weaker
and stronger states. “An annual two percent difference in the inflation
rate is more than 20% over ten years,” he noted. “It is clear that the
competitiveness of Greece and Ireland has decreased compared to other
Eurozone countries because of this.”

He lauded nearby Estonia, which has been cleared to adopt the euro
as of January 1. During the crisis, the Estonians “have adjusted
excellently and the government hasn’t lost control over the budget at
any point,” he said.

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