Bloomberg News

Stark Signals Opposition to Lowering ECB Benchmark Interest Rate

October 26, 2011

(Click EXT4 <GO> for more on the European debt crisis.)

Oct. 26 (Bloomberg) -- European Central Bank Executive Board member Juergen Stark indicated he’s against cutting interest rates to boost economic growth.

There is “a danger that new asset-price bubbles grow with rates that are left too low for too long,” Stark said at an event in Dortmund, Germany, today. He said the ECB’s key rate at 1.5 percent is “appropriate” and “adequate.”

While policy makers have so far resisted pressure to lower interest rates to help an economy battered by a sovereign debt crisis, incoming ECB President Mario Draghi said today there are “significant” downside risks to the economic outlook in the 17- nation euro area. By contrast, Stark said the economic slowdown will be temporary.

The ECB will be forced to lower its benchmark rate, which it increased twice this year, by a quarter percentage point to 1.25 percent in December, according to the median forecast in a Bloomberg News survey of 34 economists conducted last month.

Stark, who opposes the ECB’s bond purchases and has announced he will step down at the end of the year, said it’s up to governments, not the central bank, to save countries in financial distress. The ECB should not be asked to finance euro- area member states, he said.

Euro-region leaders are gathering in Brussels for the second time in four days this evening, trying to come to an agreement over the shape of Greece’s second bailout, the recapitalization of banks and the retooling of the 440 billion- euro ($612 billion) rescue fund.

“Hopefully this evening there will be a decision on the recapitalization of banks that need to be recapitalized,” Stark said. “That is the decisive point to break the vicious circle.”

--With assistance from Gabi Thesing in London. Editors: Matthew Brockett, Eddie Buckle

To contact the reporter on this story: Jeff Black in Dortmund at jblack25@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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