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UPDATE 1- German ECB candidiate hawkish as European Parliament hearing approaches

Tom Körkemeier and Eva Taylor
Monday, 13 Jan 2014 | 11:52 AM ET

approaches@

* Says should exit some measures as soon as possible

* Low interest rates not without risks in the long run

* Should not overburden ECB, govts need to reform

BRUSSELS/FRANKFURT, Jan 13 (Reuters) - Sabine Lautenschlaeger, the Bundesbank vice president set to replace Joerg Asmussen at the European Central Bank, struck a hawkish tone on Monday as she warned that low interest rates "are not without risks".

Her comments, made in written responses to questions posed by members of the European parliament ahead of her public hearing later on Monday, indicate that her views are closer to the Bundesbank than those of Asmussen, which could complicate matters for ECB President Mario Draghi.

Asmussen's departure has left Draghi short of a key German ally on the six-member board that implements monetary policy. The central bank is considering some divisive measures, having already cut interest rates close to zero.

"Some of the (ECB's) measures should be exited as soon as possible because of their side-effects. Low interest rates, for example, stimulate economic activity, but are not without risks in the long run," Lautenschlaeger wrote in her answers.

Lautenschlaeger, who made her name as an expert in banking supervision, is the only candidate to succeed Asmussen, who left the ECB two years into his eight-year term to rejoin the German government as state secretary in the labour ministry.

The EU parliament is due to decide on Thursday whether to back Lautenschlaeger and the European Council will then have the last word.

BOARD RESHUFFLE

The reshuffle at the top of the ECB comes at a delicate time. Euro zone inflation has undershot the ECB's price stability target of just below 2 percent for several months and economic growth is weak despite record low interest rates.

Bundesbank President Jens Weidmann said last month low price pressure could not be "a licence for arbitrary monetary easing" and that interest rates must be raised at the right time should inflation pressure mount.

His deputy seems to be of the same persuasion.

"The ECB is a very important stability anchor in the crisis, but it should not be overburdened," she wrote.

At its policy meeting in January the ECB strongly underlined its readiness to take further action if needed but remained unclear about where the trigger points are and what the response would be. It is running out of standard tools.

Germany's Constitutional Court will soon rule on one of the ECB's most contentious measures, the Outright Monetary Transactions (OMT), which took the heat of the debt crisis as its promise of unlimited sovereign bond purchases provided the necessary backstop to calm fears the euro would fall apart.

Asmussen proved helpful to Draghi at the outset of his ECB stint, helping him build support for his signature bond-buying plan in Germany. The question is whether Lautenschlaeger will take up a similar mediating role on the board.

Her arrival would lead to a change of responsibilities among the six members. With her strong background in banking supervision, Lautenschlaeger is poised to get the corresponding portfolio, which would also put her in pole position to become the vice chair of new European banking watchdog.

The job has to go to one of the executive board members. Yves Mersch, Peter Praet and ECB Vice President Vitor Constancio were in the running before Lautenschlaeger came on the scene.

Ahead of the hearing, Werner Langen, a German centre-right lawmaker, spoke out in favour of putting Lautenschlaeger in charge of supervision at the ECB, saying there was strong support for her appointment among EU parliamentarians.