UPDATE 1-Stability pact compromise falls short -ECB’S Stark

* Calls for more emphasis on debt reduction

* Says no time-frame on end to nonstandard liquidity steps

* Sees risk of protectionists spiral on capital controls
(Combines previous stories, adds quotes)

BERLIN, Oct 19 (BestGrowthStock) – European Central Bank executive
board member Juergen Stark has told newspapers a Franco-German
compromise on reforms to the EU stability pact falls far short
of proposals by the bloc’s executive branch.

Responding to reports of a deal reached to reform the rules
that underpin the euro, Stark said European politicians needed
to draw clear consequences from the budget crises faced by some
national governments. For details see [ID:nLDE69I0VK].

“Should these reports be confirmed, the results of the
working group would remain far behind the proposals made by the
(European) Commission,” he told the German daily Die Welt in
comments to be published in the newspaper on Wednesday.

Stark granted the interview jointly to Italian daily Il
Sole 24 Ore and Portugal’s Jornal de Negocios as well as Die
Welt.

According to extracts released on Il Sole 24 Ore’s website,
he said the new budget rules need to place more emphasis on
public debt, not only on annual budget balances.

“Since the euro zone was created, debt has often been
ignored or neglected,” he was quoted as saying.

“In some countries it has remained above 100 percent of
gross domestic product. That is not sustainable even if
deficits are below 3 percent of GDP” as current EU budget rules
prescribe.

Extracts in Jornal de Negocios quoted Stark as saying money
markets are now normalising but the ECB has no commitment on
ending nonstandard liquidity measures. “There is no commitment
on our side,” he responded when asked whether such measures
would still be in place in six months or a year.

“We are in the process of phasing out and we are now seeing
clear signs of reactivation and normalization in the money
markets,” he said.

“Banks trust each other more. Keeping these instruments
longer than needed will prevent the ongoing normalization in
the markets” from taking place.

Stark said the ECB sees neither inflationary nor
deflationary risks in the short and medium term, adding that
the benefits of low interest rates “still prevail” for now.

“However, we know from experience that keeping interest
rates too low for too long also has negative side effects,” he
said.

He said that so far there is no “currency war” in the
world, but noted that some countries have adopted defensive
responses, such as capital controls, and they could spread.

“The major risk I see is that this instrument starts to get
more widespread and be the starting point of a protectionist
spiral,” he said, adding that protectionism aggravated the
downturn in the 1930s.

The full versions of all three interviews will be released
in the newspapers on Wednesday.
(Writing by Brian Rohan, Axel Bugge and Gavin Jones; Editing
by James Dalgleish)

UPDATE 1-Stability pact compromise falls short -ECB’S Stark