Monday, June 7, 2010

ECBs Noyer: Recovery Recovery Remains FRAGILE !!!

MONTREAL (Dow Jones)--The recovery in Europe remains fragile and needs the implementation of appropriate exit
strategies, European Central Bank governing council member Christian Noyer said here Monday.
  "[The] recovery is fragile, as has been shown by recent developments in Greece," Noyer said.
  But the recovery will be sustainable if appropriate exit strategies are implemented, including clear and credible
fiscal consolidation measures, and if those strategies are accompanied by structural reforms that allow Europe to
strengthen the growth potential of its economies, Noyer said.
  Noyer was speaking at the International Economic Forum of the Americas conference in Montreal.
  He said his remarks shouldn't be interpreted as referring to specific policy directions at the ECB, which has a policy
meeting on Thursday.
  Noyer said the euro area has been out of recession for nearly a year, with gross domestic product stabilizing in the
second quarter of 2009 and picking up modestly since.
  But the recovery in the euro area is fragile and isn't yet autonomous, Noyer said.
  "The Greek crisis has illustrated that fiscal consolidation needs to start during the recovery phase," Noyer said. "It
is necessary to send strong signals, with a clear deficit reduction program, taking care however not to choke off the
  Noyer said the recent measures taken by the ECB's governing council marked a strong and swift response to a situation
in which fiancial markets were starting to seize up, citing the bank's intervention in secondary securities markets
whose abnormal functioning was jeopardizing financial stability and the implementation of monetary policy, putting in
place a mechanism to meet dollar funding needs in the euro area, and reactivating the 3-month and 6-month euro liquidity
mechanism for banks.
  "The results of our actions have been quite spectacular, particularly in the fixed income markets," he said.
  But the ECB isn't financing individual countries by buying their securites, instead it is restoring the normal
functioning of markets, he said.
  "[It is up to governments to convince investors that the state of their public finances warrants their confidence," he
  Noyer said the Greek crisis "has demonstrated the capacity of European governments to arrive at co-operative solutions
and the governance of the euro area should emerge greatly reinforced from this episode."
  The Greek crisis and its repercussions may dent consumer and business confidence in the euro zone, but that negative
impact is far from inevitable.
  "I would like to emphasize that the recovery in Europe has indeed been slow and fragile so far but there are no major
obstacles preventing it from strengthening and gathering pace," Noyer said.
  The impact of fiscal consolidation on the nascent recovery will need to be closely monitored, but past experience
shows that, when based on a strong and credible commitment, fiscal consolidation doesn't necessarily lead to economic
contraction, Noyer said.
  -By Don Curren, Dow Jones Newswires; 416-306-2020;

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