ECB's Jazbec warns of crisis repeat in reform countries

DUBROVNIK Croatia Fri Jun 13, 2014 12:30pm EDT

DUBROVNIK Croatia (Reuters) - European Central Bank policymaker Bostjan Jazbec warned on Thursday against repeating mistakes from the past that might reignite financial crisis in transition economies.

Interest rates close to zero in major economies including the United States, Japan and the euro zone and large quantities of excess cash have pushed investors to take more risk to boost their returns.

Jazbec is the central bank governor of Slovenia, which narrowly avoided having to seek an international bailout last year to help its banks tackle bad debts.

He echoed an alarm sounded in May by the ECB's financial stability review, saying investors' pursuit of higher profits could be creating new price bubbles.

Speaking at an economic conference in Dubrovnik, he asked: "Aren't we entering something in the euro area that we just got out of? We may be re-entering the new financial crisis that might come even sooner...," Jazbec said. "Maybe we have to be more careful in what we are doing today."

He clarified his comments to say he was referring to "transition countries which still have unreformed institutional settings".

"All this refers only to the transition countries and not to the whole of the euro zone," he said, declining to name any country.

Last week the ECB cut interest rates to record lows, launched measures to pump money into the sluggish euro zone economy, and pledged to do more if needed to fight off the risk of Japan-like deflation.

(This story changes first paragraph and adds new paragraphs 6-7 after governor clarifies comments were about specific group of countries, not whole euro zone; changes headline)

(Reporting by Marja Novak; Editing by Ruth Pitchford and Alison Williams)

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