UPDATE 1-ECB steps to buoy economy are enough for now -Weber

* Weber says ECB steps to date are sufficient

* Warns against exaggerating economic recovery odds

* Sees little room for tax cuts in Germany

(Combines stories)

FRANKFURT, May 18 (Reuters) - The European Central Bank’s current efforts to boost the euro zone economy go far enough unless the situation deteriorates markedly, ECB Governing Council member Axel Weber was quoted on Monday as saying.

In an interview with the Financial Times Deutschland, Weber backed the ECB’s decisions earlier this month to cut its main interest rate to 1.0 percent and buy about 60 billion euros’ worth of covered bonds.

Some of the ECB’s 22 policymakers have suggested the ECB could go further. But Weber’s comments made it clear he sees no need for policy expansion at the moment, even though he warned against taking an overoptimistic view of the recovery.

“Unless things get noticeably worse, in my view, the package of measures decided until now is sufficient,” he was quoted as saying when asked if ECB’s asset purchases would stop at covered bonds.

“We have to turn our primary attention in terms of monetary policy to letting the steps we have already undertaken take effect. There are still things in the pipeline.”

Also, he said the 1 percent level for the main refi rate was adequate and took into account a hefty downward revision in ECB staff economic projections, due for release in June alongside details of the covered bond purchase plan.

Separately, in a speech prepared for delivery in the German city of Duesseldorf, Weber said the covered bond purchases would help to improve banks’ refinancing conditions and revitalise a market which had been hard-hit by the financial crisis.

Since covered bonds were very secure, the step exposed the ECB to only slim risks, he said. Meanwhile, the ECB’s decision to extend the terms of its unlimited liquidity loans to banks to 12 months would help bring down the interest rate curve.

The comments are the latest in a series of differing public statements about how far the ECB should go to support economic recovery, although policymakers have denied any major split.

Weber said the ECB’s baseline scenario was for a weak recovery, no credit crunch and no deflationary spiral.

“We expect to have some months of negative inflation rates in the summer, but toward the end of the year, inflation will rise again to levels of 1 percent of above,” he told the FTD.


Weber said there were signs that the downward economic trend was easing in industrialised and developing countries, but they were still in a period of weakness and labour markets could worsen further.

“I really warn against overly exaggerating the signs of hope on financial markets and the signs of a calming in the economic cycle,” Weber said.

“The financial crisis is just starting to reach people, through job losses. Declaring the start of the recovery prematurely has inherent dangers. People become disappointed, and that can have an enormous negative impact on confidence.”

In Germany, the euro zone’s biggest economy, the high point of unemployment was likely to be reached only in winter 2010/2011, he predicted.

“I don’t expect sustained positive growth rates before the middle of next year, which does not rule out that there might be a positive blip in the meantime,” he said in Duesseldorf.

The Bundesbank president also urged politicians to rein in public finances, after promises of tax cuts from major parties before a federal election in Germany in September.

Given the hit to tax revenues, it was quite plausible that Germany’s budget deficit would reach close to 6 percent of gross domestic product in 2010, as the European Commission expected, he said. “Given this backdrop, it appears to me quite questionable how there would be room for comprehensive tax cuts in the foreseeable future.”

Weber also said U.S.-style bank stress tests were not suited to the euro zone, due to the diversity of banks’ portfolios and operations. Sweeping comparisons were therefore “not very meaningful and potentially misleading”.

“Anyone who draws direct conclusions from them for the possible capital requirements is not doing justice to their complexity,” he was quoted as saying of stress tests. (Reporting by Krista Hughes; editing by David Stamp)