A top European Central Bank official said Sunday that borrowing costs in the 16 euro nations were “no different” to the United States where interest rates are close to zero. ECB governing council member Axel Weber also said Europe's response to the financial crisis would not trigger inflation and fears that a euro-zone nation would seek a bailout were “hugely exaggerated.” He said euro-zone short-term borrowing rates are below 1 percent – lower than the headline rate of 1.5 percent – while inflation was coming down to 1 percent. “The real rates are actually no different, neither in the short-term nor in the medium-term, in the euro-zone relative to the US,” he told a conference organized by the German Marshall Fund think tank. Weber, president of Germany's central bank, said the ECB still had “room to maneuver” on lowering the euro-zone's key interest rate which are “1.5 percent and heading down.” He said the ECB's efforts to make money available to banks offset some of the decline in banks' balance sheets as they write down the value of complex securities and derivatives. “Once it starts looking inflationary we will tidy the mess,” he said of liquidity-boosting operations by the central bank for the 16 euro nations. “We know exactly when to start tightening” by raising the cost of borrowing to curb soaring prices. Weber said higher bond rates for countries like Ireland and Greece are facing on billions of dollars in debt they are offering to investors “is a pricing issue” that reflected their track record of economic management and not a risk that their economies could collapse and they would not pay back loans.
