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UPDATE 1-ECB's Sramko:econ improves but sustainability unclear

Published 09/22/2009, 08:18 AM
Updated 09/22/2009, 08:21 AM
TGT
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* Economy stabilising, questions over sustainability

* Exit strategy key, need coordination with Commission

(Adds quotes, details, Weber)

BRATISLAVA, Sept 22 (Reuters) - The euro zone economy is stabilising but questions remain on the sustainability of the recovery, European Central Bank Governing Council member Ivan Sramko said on Tuesday.

Sramko, the head of the Slovak central bank (NBS), said an improvement in the euro zone economy was seen in the second half of the year.

"The economy is stabilising, there's a visible improvement and we expect (further) improvement in the second half of the year," Sramko told a news conference.

"Many questions, however, remain it terms of sustainability."

Inflation was still below target and no significant jump was expected, Sramko said.

He said the key now was to find the right exit strategy after monetary and fiscal easing that helped to halt the economic drop. "I expect there will be a strong cooperation (with the European Commission) in term of the fiscal consolidation (of member states)," he said.

"The ECB is ready to launch an exit strategy, when the time is right," he said.

The words echoed comments by Governing Council member Axel Weber who said in a Market News interview that the ECB was obliged to raise interest rates once the euro zone economy recovers [ID:nLM205927].

But Sramko also warned that there was still a risk that the recovery would be "W" shaped -- meaning a repeated dip in output.

"If there are signs that the downturn continues, the central bank is ready to act," he said.

Sramko would not comment on whether ECB interest rates -- at a record low of 1 percent -- were at the bottom.

Economists polled by Reuters expect flat ECB rates until the bank begins to tighten policy in the third quarter of 2010, although it may take back some of the extra liquidity it is supplying to markets. [ECB/INT] (Reporting by Martin Santa; writing by Jan Lopatka; Editing by Ron Askew)

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