FRANKFURT (FWN) - Bundesbank president Ernst Welteke said the effects of interest rate cuts made so far this year by the European Central Bank have partly not yet appeared.
In a prepared speech before a meeting on credit policies, Welteke also said monetary and fiscal policies cannot prevent adjustments in the economy nor the ups and downs of the economic cycle.
Welteke said Europe can be "cautiously optimistic" about the economy as the euro zone's stability-oriented monetary and fiscal policies in the past years make it easier to overcome economic crisis.
"The world economy right now is not only in a phase of marked weakness but also in a phase of pronounced insecurity. The attacks in New York and Washington have increased this insecurity," he said.
"The extent and the regional focus of the military conflicts as well as further anthrax attacks could decisively influence confidence of companies and consumers," he added.
He said Europe is experiencing a "supply and demand shock", which has resulted in economic costs due to the need to adjustments in capacity. "The result is a temporary low economic growth," he said.
He said the data of the financial markets also give reason for "cautious optimism on the medium term".
He said real interest rates have declined since mid-2000, and the spread in borrowings made by companies have slightly declined, and the share prices indicate the first signs of bottoming out.
"The financing conditions of private households and the economy have not yet improved so strongly as one can expect for interest rates that were cut 100 basis points. The levels for credits for consumers, demand deposits and company loans up to now have only fallen slightly," he noted.
"This is mainly due to the current risk situations on the markets," he said.
"With increasing time intervals, the markets will feel more secure in assessments and the risk spreads will decrease. This is also the reason why the effect of this year's interest rate cuts have partly not yet appeared," he said.
He said monetary and fiscal policies cannot prevent "necessary adjustments nor the ups and downs of economic cycles".
"But lively competition, flexible markets and incentives that are correctly given can make the necessary adjustment processes easier. On this area, there exists in Europe sufficient room for maneuver -- even now in times of restrained growth and tight budget," he added.
He said stability-oriented monetary and financial policies in thepast years has made it easier to overcome crises and low inflation has in turn led to lower net financial investments in the public sector.
"This has won room for maneuver, which should not be squandered away. The room for maneuver in the major countries in the euro zone is nevertheless limited," he said.
Welteke said the latest published indicators of public mood in the euro zone indicate "almost completely a further weakness in the eocnomic activities" but noted that "the mood is worse than the actual situation".