Worst of crisis is over: ECB chief economist

9th July 2010, Comments 0 comments

The European Central Bank's chief economist said Friday that the worst of the eurozone's economic crisis was over but warned other major economies their policies were unsustainable.

Juergen Stark told reporters on the sidelines of a bank conference that "it seems that the worst is over" given that ECB loan operations came off smoothly at the beginning of July and economic indicators show solid growth in much of the 16-nation bloc.

"The most recent economic data is confirming that the recovery will continue," Stark said.

"We have entered a new phase in the sovereign debt crisis here in the euro area but which is a global phenomenon," he added.

Stark stressed that "both European governments and the ECB had the situation under control since early May, we always had the situation under control" as financial markets began to fear some banks could become insolvent.

That was owing to heavy levels of bank lending to some eurozone governments and real-estate sectors.

The crisis was described as a wake-up call to eurozone governments that Stark said were now serious about fiscal reforms and more structural changes as well.

"In leading economies in the world I don't see this commitment to fiscal consolidation, I see the contrary," the ECB economist said.

The United States for example has urged major European countries like Germany to provide more economic stimulus, but such policies will "in the end will turn out not to be sustainable," Stark warned.

Earlier in the day, ECB president Jean-Claude Trichet warned that "many countries in the industrialised world have reached the limits of fiscal expansion."

Stark also criticised the International Monetary Fund's latest assessment of eurozone growth prospects, saying: "We see a bias here, that the IMF has not caught up to the reality in Europe.

"The IMF in my view is underestimating the strength of the recovery in the euro area" and other regions of the world," Stark said.

© 2010 AFP

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