EURO ZONE bonds are not the solution to the debt crisis, outgoing European Central Bank board member Jürgen Stark has said.

Dr Stark, who has previously indicated his opposition to eurobonds, said the introduction of joint bonds could only be envisaged if there was greater political union between member states.

In a wide-ranging speech to the Institute of International and European Affairs in Dublin yesterday, Dr Stark said the euro zone debt crisis had “reintensified” and had now spread to the so-called core countries.

“Debt tolerance is declining among investors,” he said, noting that investors were now taking a closer look at the fundamentals of countries before investing.

However, he warned of the dangers of “talking ourselves into a recession”, arguing that the recent slowdown in the euro zone economy was temporary.

Europe was not alone in experiencing an economic slowdown, he continued, pointing out that most advanced economies were facing “serious problems”.

Stressing the heterogeneity of euro zone economies, Dr Stark said macroeconomic imbalances were at the root of the sovereign debt crisis.

He pointed out that, while inflation in the euro zone cumulatively between the years of 1999 and 2010 was, on average, 26.5 per cent, in Greece this figure was 46.9 per cent, 34.6 per cent in Ireland and 33.8 per cent in Portugal. In contrast, France saw its inflation rise by 23.1 per cent and Germany, 19.8 per cent during the same period.

Similarly, Greece saw its unit labour cost rise by 3.5 per cent over this 11-year period, in contrast to a euro zone average of 1.6 per cent.

Ireland’s labour costs rose by 2.6 per cent, and Spain’s costs rose by 2.5 per cent.

According to Dr Stark, price and wage flexibility is a key instrument available to national governments in a monetary union.

While fiscal transfers were an option, they can only play a stabilising role if based on strict conditionality, he said.

Dr Stark praised Ireland’s adoption of fiscal consolidation measures, describing Ireland as a “role model” for other countries in receipt of a bailout programme.

Ireland’s success in implementing austerity measures, he said, shows that “it is feasible, it’s possible to implement progress as long as there is support from the society and consensus across political parties”.

Euro zone inflation rate which reached 3 per cent in October, is expected to stabilise in 2012, he said.