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UPDATE 1-ECB's Draghi-Imbalances growing, world recovery at risk

Published 10/28/2010, 07:15 AM
Updated 10/28/2010, 07:20 AM

* Draghi says FX interventions hurting floating currencies

* Wants EU rules to help weak economies pass reforms

* Says FSB to list SIFIS next year

* Sees Italy GDP growth around 1 percent in 2010, 2011 (adds Draghi comments, background)

By Gavin Jones and James Mackenzie

ROME, Oct 28 (Reuters) - Widening balance of payments imbalances and currency interventions aimed at boosting exports mean the global economic recovery is at risk, European Central Bank Governing Council Member Mario Draghi warned on Thursday. In a keynote speech to celebrate savings day in Rome, Draghi said the only way to address the problem was through closer co-operation between the world's large economies, something that the G20 was aware of.

"The recovery is strong in emerging economies, weak in the United States, unequal in the euro zone," the Bank of Italy governor told a gathering of politicians and bankers.

"Current account imbalances are widening again, free floating currencies are suffering from (government currency interventions), divergent policies and consequent speculative tensions. The global recovery itself is at risk," he said.

Commitments made by the Group of 20 rich and emerging economies to reduce imbalances were still an important step in still "difficult" negotiations and showed there was common awareness of "the inevitability of common action," Draghi said.

Draghi, who is president of the Financial Stability Board, said the FSB would next year issue a list of so-called Systemically Important Financial Institutions (SIFIs) whose size or position means they could threaten the financial system if they collapsed.

The FSB will present the G20 with proposals aimed at increasing the ability of these banks to withstand large losses and at creating a regulatory framework that will allow governments to let them fail when necessary, he said.

Draghi, who is considered a candidate to head the ECB when President Jean-Claude Trichet's term expires next year, called for common European Union rules to oblige slow growing economies to adopt necessary structural reforms to boost growth.

Closer to home, he said Italian economic growth will be "not far from 1 percent" this year and also in 2011, compared with the government's official forecasts of 1.2 percent in 2010 and 1.3 percent in 2011.

A relatively firm recovery in the first half of the year had been boosted by an increase in exports, which is now slowing down, he said.

Italy's jobless rate, officially 8.5 percent, would be above 11 percent if it included workers sent home on reduced pay and people who had given up the search for work, Draghi said.

In remarks likely to fuel a long-running spat with the government over the state of Italy's labour market, Draghi said that this would put Italy's jobless rate in line with France's and above that of Britain and and Germany.

(Reporting by Gavin Jones and James Mackenzie; editing by Patrick Graham)

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