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To: Haim R. Branisteanu who wrote (73809)	6/13/2010 12:06:35 PM
From: Haim R. Branisteanu	Read Replies (1) \| Respond to of 74559

=DJ INTERVIEW: ECB Orphanides Hints Rates On Hold For Many Months By Nina Koeppen Of DOW JONES NEWSWIRES FRANKFURT (Dow Jones)--European Central Bank governor Athanasios Orphanides indicated in an interview with Dow Jones Newswires that interest rates in the euro zone will remain on hold for many months, urging European politicians to tackle yawning inefficiencies in fiscal governance. If Europe's leaders fail to get their act together, then another financial crisis or debt crisis may well be around the corner, he warned. Speaking in an interview following the ECB's policy-setting meeting on Thursday, Orphanides said the outlook for consumer price inflation in the euro zone remains benign, despite the recent uptick in prices. Core inflation, which excludes volatile components such as energy and food, has been trending down, he said, pointing to slack private consumption in the 16 countries that make up the euro zone. "In light of these developments, I do not view high inflation as a concern," said Orphanides, who was born in Cyprus and educated at the Massachusetts Institute of Technology. The remarks indicate the ECB currently sees no reason to raise interest rates from their current record lows to counteract inflationary pressure. His remarks will also dispel concerns that the euro's recent sharp depreciation, combined with accelerating growth in developing economies, will fan inflation in the euro zone. Higher energy prices have already pushed up the region's annual inflation rate to 1.6% in May from 1.5% in April. The ECB's prime objective is to keep inflation contained. Orphanides would not rule out a temporary divergence in inflation trends across the euro zone, but rebuffed speculation that the area could be spit in two inflation-wise, with peripheral economies facing sustained price declines, while core nations suffer from high inflation. "Temporary deviations may occur and may last for a few years. We must carefully monitor the relative competitiveness of different economies in the euro area" to detect a buildup of imbalances or tensions, he said. The economist cautioned "divergence that cannot be explained by relative productivity differentials could create difficulties and require adjustments." Orphanides, who was on the U.S. Federal Reserve staff between 1990 and 2007, urged European Union leaders to establish a special agency that monitors and also shapes fiscal developments in the region. "We can think of a number of areas where the mechanisms could be strengthened...and one idea is the creation of an independent [fiscal] agency within the European Commission" that comprises the union's technocrats and administrators, he said. Speaking in his office on the 33rd floor of the ECB tower in Frankfurt, Orphanides said the EU needs a body that has the "power to be more intrusive in order to get the information needed for effective governance. "It may also be desirable for the agency to have the power to enforce better fiscal governance by imposing sanctions to discourage misbehavior," he said. Countries that share the currency submit to a single monetary policy but manage their own fiscal affairs. The stakes are high. If Europe's leaders fail to act, then problems may reemerge and evolve into another costly crisis, cautioned Orphanides, who heads the Central Bank of Cyprus. "Strengthening economic governance in the euro area is of the utmost importance to prevent a similar crisis occurring in the future. It should be high on the euro area's political agenda." EU officials--faced with a sovereign debt crisis--have acknowledged the need for greater economic governance and centralized planning. But they have also resisted ceding control over national budgets or shifting decision-making to the Brussels-based Commission.