ECB official 'optimistic' on euro future

Stronger fiscal coordination among euro zone countries will form a sufficient basis for the survival of the single currency, European Central Bank Governing Council member Jozef Makuch said today.

Speaking at an economic seminar, Mr Makuch echoed comments by fellow central bankers that inflation in the euro area could rise further above the bank's 2 per cent target in the first half but fall back after that.

European governments have been discussing ways to strengthen the euro zone's fiscal framework to avoid profligacy among member states which led to Europe's debt crisis.

Mr Makuch said he was optimistic about the euro's future because the crisis was a fiscal one and it was being addressed.

"The optimism that the euro will survive is optimism stemming from (the fact that) large fiscal projects are being implemented not only in those countries directly threatened but also in others," Mr Makuch told an economic conference in Bratislava.

"There is an assumption that the fiscal leg, although not full-fledged ... is strengthening, and it will be sufficient to hold up the euro together with the monetary leg."

European leaders have been discussing a number of measures to boost fiscal discipline in the euro zone and at the same time boost the capacity of the main debt crisis-relief tool, the European Financial Stability Facility (EFSF).

No specific decisions have yet been taken - and may not be until EU leaders meet to discuss next steps at a summit on March 24-25th - but trial balloons and proposals are being released that suggest some of the tactics under consideration.

Echoing other ECB policymakers, Mr Makuch said an inflation rise above the ECB's target of below but close to 2 per cent was a temporary problem.

"It (inflation rise) has so far been viewed as a temporary issue, it can go a little higher in the first half but then it should get toward the ECB's long-term target," he said.

Mr Makuch said the euro zone's next round of banking stress tests must be based on stricter criteria than last year's tests which failed to reveal risks in banks' balance sheets, but at the same time an overly strict approach would also be wrong.

Another ECB Governing Council member Marko Kranjec, who heads Slovenia's central bank, said today the next round of EU bank stress tests would be conducted in February and the criteria for banks would be much tougher than tests carried out last year.

Reuters