ECB warns of global imbalance

City A.M. Reporter
THE SOVEREIGN debt problems engulfing countries like Greece may represent the next chapter in the financial crisis, European Central Bank (ECB) executive board member Juergen Stark warned yesterday.

Eurozone governments have been forced to step in and provide promises of financial aid for Greece after market fears erupted on worries it could default on its debt and even quit the euro.

Investors have also turned a harsh spotlight on other countries facing deficit problems inside and outside of the 16-nation eurozone.

“I am particularly concerned about the dramatic deterioration in public finances,” Stark said in a speech in Washington. “We may already have entered into the next phase of the crisis -- a sovereign debt crisis following on the financial and economic crisis.”

The ECB has done little in the Greek crisis, with responsibilities instead falling on the shoulders of the bloc’s national governments.

Stark warned that Greece must solve its own fiscal problems and Athens must not look for help.

“It is up to the Greek authorities to do their job,” Stark said in response to a question, noting that Ireland did not ask for assistance with its fiscal woes.

Last week, the ECB kept interest rates at a record low of one per cent for the 11th month running and put a heavy focus on the debt problems facing governments in its post-decision statement.

However, Stark said policymakers must also consider the consequences of keeping rates too low for too long.

In the wake of Greece’s problems, economists have been pushing expectations for the first ECB rate hike back to next year.