Bloomberg News

Stark Says ECB Will Need to Absorb Liquidity From 3-Year Loans

February 24, 2012

Feb. 24 (Bloomberg) -- Former European Central Bank Executive Board member Juergen Stark said the ECB will at some stage need to absorb the liquidity it is providing to banks through its three-year loans or risk pushing up price expectations.

The central bank should “be prepared to absorb this liquidity at a certain point in time in order to avoid” driving up “inflation expectations,” Stark said in an interview with CNBC Television today.

The ECB will next week make its second offering of three- year loans, a move intended to relieve liquidity strains in the region as officials work to limit the fallout from the debt crisis. The three-year funds cost the average of the ECB’s benchmark interest rate, currently at a record-low 1 percent, over the period of the loans and banks have the option of repaying them after a year.

Stark also said the euro area will overcome this crisis and emerge “stronger than before.”

“The risk that the euro area will break up is really exaggerated,” he told CNBC. “There will be no political agreement to break up the euro. It will continue.”

--Editors: Matthew Brockett

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Scott Hamilton at shamilton8@bloomberg.net


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