BERLIN, June 25 - Bundesbank President Ernst Welteke was quoted on Wednesday as saying there was little point expecting much more monetary stimulus from the European Central Bank and that the bank would not act to counter the strong euro. In an interview with Der Hauptstadtbrief magazine released on Wednesday, Welteke said it was exaggerated to expect the ECB's June 5 half-point rate cut to 2.0 percent to spark a major economic upswing or to expect further monetary stimulus. "According to all the indicators, business in Europe has plenty of liquidity. Interest rates have never been so low since World War Two. It is not very promising to expect further significant boosts from monetary policy," Welteke said.
"An economic recovery is not failing due to monetary policy," he said, adding he did not expect a broad upturn in the euro zone economy just because of the ECB's last cut. Several ECB policymakers have said in recent days that borrowing costs are not holding back business activity -- dampening hopes in financial markets and among some politicians that further cuts are on the cards to help stimulate growth. The U.S. Federal Reserve is expected to cut its main rate to only one percent or even 0.75 percent later on Wednesday. Welteke said he was not concerned about the strength of the euro against the dollar which he said had more to do with developments in the United States than in the euro zone. But he noted it was starting to hurt German export competitiveness. "Monetary policy will not counteract this development. The ECB pursues no particular exchange rate," he said.
Welteke said he would not comment on U.S. policies with respect to the value of the dollar but noted that central bankers were always interested in a strong currency because it made their task of controlling inflation easier. Welteke said price expectations in the euro zone were still for inflation rather than the opposite. "I see neither Germany nor Europe sliding into recession or deflation," he said. The ECB council member rejected suggestions Germany faced a credit crunch like that seen in Japan in recent years. "German banks have for some time been working to overcome their problems and with clear progress," he said. "I see no general credit crunch." But Welteke warned the German government against financing earlier tax cuts by increasing borrowing, a step that would push back the goal of balancing the budget and hurt the European Union's Stability and Growth Pact.
"Whoever gives up this goal will cause conflicts between monetary and fiscal policy which the pact was supposed to avoid," he said. "Nothing works without consolidation." "Such behaviour would make the future more difficult for the next generation who will inherit the unsolved problems of our social welfare system along with a higher debt burden."//