EU growth will be slow in H1

Euro zone economic growth early this year is likely to slow from the second half of 2009 but the region will probably not fall back into recession, European Central Bank policymaker Juergen Stark said.

Stark, one of the ECB's six-strong executive board, said Greece should not expect any changes in ECB or EU rules in its battle to curb ballooning deficits and gain economic credibility.

"Probably the first half of 2010 will be somewhat more restrained than the second half of 2009," Stark said in a speech at the University of Leipzig in eastern Germany.

"But in the coming quarters it is not likely to come to a further downturn [double dip], rather have the characteristics of a gradual and bumpy economic recovery."

Given that gradual recovery, there were currently no risks to price stability, he said, in comments which bolster expectations the ECB will keep rates at a record low one per cent for most of the year. Stark also said there would be no rule changes to help Greece, facing a battle to get its budget under control.

Greece's top priority had to be comprehensive budget consolidation.

"Greece knows that it has to catch up on its homework," Stark said.

"As the president of the ECB said recently, we will not change our rules, and from the political side one has pointed to the application of the currency union's rules, as they are laid out in the treaty about the workings of the EU."

Also other countries must work on fiscal consolidation strategies and on improving potential growth.

If public debt growth becomes unsustainable, this would cause upward pressure on interest rates, which could in turn lead to less private investment, Stark said.

"Several banks still rely on support measures," he said. "There also some signs of worsening credit quality, which could lead to a new wave of write-downs."

 

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