ECB's Bini Smaghi says halt in economic reforms could trigger higher rates

BERLIN (Thomson Financial) - European Central Bank board member Lorenzo Bini Smaghi said any halt in economic reforms in the euro zone might lead to higher ECB interest rates.

'If the reform process stops, monetary policy might need to act more decisively to safeguard price stability over the medium term,' he said in a speech.

Bini Smaghi said there is already some evidence of a slowdown in the pace of reform especially in the larger euro area countries.

'The risk that I see in several countries, including Germany, is that the current strong recovery induces a relaxation of the reform effort. This will ultimately lead to the emergence of bottlenecks in various markets and hamper a strengthening of growth potential. Speed limits on growth will hit potentially sooner than expected, thereby unleashing inflationary pressures,' he said. [e-mail] sw/ejb COPYRIGHT Copyright AFX News Limited 2007. All rights reserved. The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News.