UPDATE: Mexico's Carstens: Mon Pol Can't Postpone Govt Action
--Updating Story Published 18:44 ET Sat; Carstens Q&A Comments
WASHINGTON (MNI) - Mexican Central Bank Governor Agustin Carstens Saturday warned governments against a "slippery slope" of using accomodative monetary policy to postpone critical fiscal decisions.
Carstens said there is "not much" monetary policy can do except create a "window of opportunity" for governments, but he warned governments could wind up "worse off" if they do not take advantage.
Monetary accomodation "is a very slippery road," he said. "If the market believes you are using it to postpone decisions ... you will have trouble very soon."
Carstens said contagion problems make the Eurozone's sovereign debt crisis "far more complex" than those of individual countries or the many debt struggles of Latin American nations in the past.
Carstens said Latin America's many country defaults in the latter half of the 20th century "gave us a very important richness of knowledge of what generates crises and how to solve them."
Mexico had over the last 15 years succeeded in developing "some low risk assets," he said, noting the average maturity of Mexican debt is now higher than in the United States, "and that allows for the economy to work."
But "the situation in Europe is far more complex than the individual case in any country," because the common currency means "the problem of one country can become the problem of the whole union."
Carstens, in a conference organized by the Bank of France, said the most "immediate task" to combat contagion is to "anchor" market expecations with a convincing macro-economic policy response.
If Europe can succeed in establishing "credible macro-economic policy adjustment," then the "dynamics of the market changes from vicious circumstance to a virtuous circle," he said.
** MNI Washington Bureau: 202-371-2121 **