Euro zone economic growth early this year is likely to slow from the second half of 2009 but the region will probably not fall back into recession, European Central Bank policymaker Juergen Stark said today.
Mr Stark, one of the ECB's six-strong executive board, also said Greece should not expect any changes in ECB or EU rules in its battle to curb ballooning deficits and gain economic credibility.
"Probably the first half of 2010 will be somewhat more restrained than the second half of 2009," Stark said in a speech at the University of Leipzig in eastern Germany.
"But in the coming quarters it is not likely to come to a further downturn (double dip), rather have the characteristics of a gradual and bumpy economic recovery."
Given that gradual recovery, there were currently no risks to price stability, he said, in comments which bolster expectations the ECB will keep rates at a record low 1 percent for most of the year.
Mr Stark also said there would be no rule changes to help Greece, facing a battle to get its budget under control. Greece's top priority had to be comprehensive budget consolidation.
"Greece knows that it has to catch up on its homework," he said.
"As the president of the ECB said recently, we will not change our rules, and from the political side one has pointed to the application of the currency union's rules, as they are laid out in the treaty about the workings of the European Union."
Also other countries must work on fiscal consolidation strategies and on improving potential growth.
If public debt growth becomes unsustainable, this would cause upward pressure on interest rates, which could in turn lead to less private investment, Mr Stark said.
He also said euro zone banks were still not out of the woods.
"Several banks still rely on support measures," he said. "There also some signs of worsening credit quality, which could lead to a new wave of write-downs."
Meanwhile, International Monetary Fund managing director Dominique Strauss-Kahn said the euro region will withstand the turmoil caused by Greece's credit downgrade.
"It's a serious problem," Strauss-Kahn said in an interview with Bloomberg Television in Hong Kong today, referring to the Greek fiscal situation. "But I don't think that would lead to the fragmentation of the euro zone."
Greece's deteriorating finances prompted Fitch Ratings, Moody's Investors Service and Standard & Poor's to cut its sovereign ratings last month, spurring a sell-off in its bonds.
The country faces pressure from other European Union governments to tackle the crisis caused by a budget deficit more than four times the EU limit of 3 percent of gross domestic product.
Agencies