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ECB called to announce withdrawal of incentives

After hundreds of billions of euros were pumped into the economies of Europe, the European Central Bank must announce the start of a withdrawal of financial market incentives, but this should be done without giving a schedule, former head of the European Monetary Institute Sándor Lámfalussy said at a conference organized by the National Bank of Hungary in Budapest on Friday.

“The withdrawal must take place,” he said, otherwise there will be a risk of state debt exploding.

Lámfalussy could not set an optimum date for the withdrawal, but said it would be possible when private sector demand and exports start growing, perhaps in one or two years.

Lámfalussy noted that, while the effects of monetary policy are immediate, the effects of fiscal policy take 18 months to feel. Fiscal decisions taken today will not have an effect until 2011.

The European Systemic Risk Board (ESRB), which will assess and prevent potential risks to financial stability in the EU in the future, must have a direct line of communication between financial institutions and financial groups operating in Europe, Lámfalussy said.

Regulation of Europe's money markets has to be made more swift if high-risk trends are detected, he said. (MTI-ECONEWS)