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Ecb Governing Council Member Yves Mersch: " Current Economic Recovery In The Euro Zone Is Not Sustainable "

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ECB's Mersch says current recovery not sustainable

08.24.09, 03:27 PM EDT

LUXEMBOURG, Aug 24 (Reuters) - The current economic recovery in the euro zone is not sustainable because it depends on public funds and is not yet supported by private investment and new job creation, ECB Governing Council member Yves Mersch said.

In an interview with Luxembourg daily Wort, to be published on Tuesday, Mersch said that despite higher activity in international trade, only a global rise in demand could make the trend sustainable.

'We should not be overcome with optimism that everything is over by now,' the paper quoted Mersch as saying.

'There are two explanations proving why the current recovery cannot be sustainable,' he said, pointing to the depletion of inventories caused by very low capacity utilisation and to fiscal and monetary stimulus that was still necessary to keep the economy going.

'In the U.S. they talk about the beginning of a recovery in the global economy. In Europe, we prefer to speak about the end of the crisis,' he said.

'These messages have something in common -- the free-fall of the economy has been slowed, not only on the basis of surveys, but also on the basis of data,' he said.

He said that bulging budget deficits as well as excessive liquidity in banks were a concern, but noted the ECB was not yet withdrawing its liquidity measures and warned against raising taxes to fill empty government coffers.

'The danger of a renewed downturn is not yet over,' he said.

'Firstly we expect that banks will have to make further provisions by the end of the year for rising credit default risk,' Mersch said.

He said primarily small banks could have problems, while systemically important ones seemed to be already out of danger.

But the key was a sustained rise in global demand.

'Without such a sustainable development of demand there will be no new investment,' Mersch said.

'Only through this will new jobs be created, and nothing of this has been seen so far,' he said.

'At the moment the investment slump is being compensated by public spending. As long as global growth is supported by public help, we cannot talk of sustainable growth,' he said.

He also noted the risk of protectionism and financial nationalism as one that could cause a relapse of the recession.

http://www.forbes.com/feeds/afx/2009/08/24/afx6809393.html

Spot on. ;)

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So it's not sustainable because more private debt isn't supporting the recovery?

How long till they realise the private sector is saturated with debt and can't handle the current levels, let alone more?

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