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UPDATE 1-World risks inflation problem -German finmin

Published 03/13/2009, 11:24 AM
Updated 03/13/2009, 11:32 AM

(Adds Steinbrueck quotes)

By Robert Hetz

MADRID, March 13 (Reuters) - The world could face a serious inflation problem if it injects too much money into markets to combat the global recession, German Finance Minister Peer Steinbrueck said on Friday.

With the United States pushing Europe to boost stimulus spending, Steinbrueck said global economies ran the risk of repeating the same mistakes they made in the economic crisis following the September 11, 2001 attacks on New York.

"We injected a lot of money into the market, a lot of liquidity, we launched fiscal stimulus plans, short-term plans, that at a global level created huge credit growth...particularly in the United States," Steinbrueck said during a speech to an economic conference in Madrid.

"We have to confront a process which could quickly present the next problem .... not in the short term, but in the medium term, an inflation problem at a global level."

The G20 summit next month is shaping up as a showdown between the United States, which wants fellow members of the club to spend more, and European countries which want to implement existing stimulus plans and rein in deficits.

Issues such as stimulus spending and state solvency problems are high on the agenda of the London summit, which is seen by some as a last chance to stop the global economy tumbling into depression.

Asked whether Europe could handle solvency problems, Steinbrueck said the European Union saw no risk among any member of the 16-member euro zone currency bloc but would be prepared in any case.

"The euro zone is undoubtedly and definitely stable, no member of the euro zone is really suffering from difficulties related to loans or credits," he told reporters.

Spanish Economy Minister Pedro Solbes echoed his comments when asked if Spain was prepared to help in a bailout of Ireland, should it run into debt problems.

"It's not a subject that has come up as of now, although we have spoken about the finances of countries within the context of the European Union, without talking about specific cases," he told reporters at the conference.

In his earlier speech, Steinbrueck said he was more concerned by spreads between government bonds issued by different euro zone countries than any potential sovereign debt default.

(Reporting by Robert Hetz and Andrew Hay; editing by Andy Bruce)

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