RBS urges slow, steady recovery

LONDON Sat Sep 12, 2009 11:22pm BST

A man uses a Royal Bank of Scotland (RBS) cash machine in Edinburgh, Scotland August 7, 2009. REUTERS/David Moir

A man uses a Royal Bank of Scotland (RBS) cash machine in Edinburgh, Scotland August 7, 2009.

Credit: Reuters/David Moir

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LONDON (Reuters) - The chief executive of the Royal Bank of Scotland says Britain needs a slow recovery from recession and that a rapid bounce could generate further problems for the economy.

Stephen Hester, CEO of the 70-percent state owned bank, said if Britain failed to address its economic imbalances it faced a "Japanese lost decade" or another future downturn.

Recent bright economic data, showing a rise in house prices and consumer confidence, while the FTSE-100 index of leading shares has climbed above 5,000 for the first time in 11 months, has raised hopes that Britain is emerging from recession.

But Hester warned that any speedy recovery would present its own dangers and there should be a "slow rate of growth while the economy repairs itself."

"Arguably what we need as an economy is a gradual emergence from recession where the economy can complete the rebalancing that has not in any way been completed," he said in an interview with the BBC broadcast on Saturday.

"It's possible that we actually enjoy a rather faster recovery where people are tempted to say 'that was a bad nightmare behind us but don't worry it's gone and we can go back to where we were before'.

"That might happen, and if it does happen it will be dangerous because we won't have fixed the problems that have just recently exploded in our face. Until we fix them the world is an unstable place and our economy is unstable."

Hester said there needed to be a situation where Britons saved more and borrowed less, while the government needed to get its budget deficit, expected to top 12 percent of gross domestic product, under control.

The issue of public spending has become a political battleground. The governing Labour Party says spending will have to be cut in the future while the opposition Conservatives have called for immediate reductions.

"Human beings find it extremely hard to deny themselves today in favour of a safer and calmer future, whether that's pensions, whether that's holidays, or in the case of government's spending when governments have got to be elected.

"I think it is desirable, in fact necessary for a bright and stable future for these imbalances to be repaired," said Hester, appointed last year after the government provided emergency assistance to bail out RBS.

The bank reported a 1 billion pound loss for the first six months of the year in August and Hester, who is in line for a multi-million pound bonus if he reverses its fortunes, said RBS's recovery would take some time.

(Reporting by Michael Holden)

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