Delaying austerity is no easy way out: ECB's Asmussen

LONDON (Reuters) - European Central Bank Executive Board member Joerg Asmussen urged governments to push on with budget consolidation and reforms, saying there are no alternatives to those measures.

Doubts over the effectiveness of setting hard targets for reducing national debt have emerged in light of a sluggish global recovery. On Monday, European Commission President Jose Manuel Barroso said austerity had reached its natural limits of popular support.

Speaking at the Economist's Bellwether Europe Summit in London, Asmussen rejected such notions and said there was no way around "painful" rebalancing in the euro zone and added that the ECB had already done a lot and could not do more.

"Delaying fiscal consolidation is not an easy way out - if it were, we would have taken it," Asmussen said.

"Delaying fiscal consolidation is no free lunch. It means higher debt levels. And this has real costs in the euro area where public debts are already very high," he said.

It would put countries back at the mercy of financial markets, would mean that a greater proportion of governments' budgets would go to servicing debt rather than investing in education and infrastructure and it would pass the burden on to future generations, Asmussen said.

Looser monetary policy could not solve the crisis.

"Monetary policy is not an all-purpose weapon for any kind of economic illness," Asmussen said. Even another cut in interest rates would not help crisis-stricken countries much.

"Due to impaired monetary policy transmission, the pass-through of rate cuts to the periphery would be limited, and this is where they are most needed," Asmussen said.

He also stressed that interest rates that were too low for too long could eventually lead to distortions.

(Reporting by Marc Jones, writing by Eva Kuehnen)

Source: http://news.yahoo.com/delaying-austerity-no-easy-way-ecbs-asmussen-080421780--business.html

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