A robust euro zone economy going at full speed poses inflation risks, European Central Bank Governing Council member Nout Wellink said today.
Mr Wellink said the euro zone had grown strongly in 2006, and that the output gap and labour market situation showed it was going at full steam.
"There is a risk for the euro zone if the economy is going at full steam - then inflationary pressures will rise," Wellink, presenting the annual report of the Dutch Central Bank, said. He also urged moderation in wage price increases, particularly in Germany.
In its annual report, the Dutch central bank said the current ECB interest rate of 3.75 per cent was still low when seen in a historical perspective and that long-term interest rates were barely responding to rate rises by the ECB.
In a summary of global economic developments, the bank noted: "Asset prices - on stock and housing markets - threaten to overshoot, while in a climate of low interest rates and reduced risk awareness, both households and investors may enter too lightly into financial risks and debt accumulation."
"In such a setting, a sudden reversal in sentiment could have serious repercussions for the financial markets and the real economy."