Slovenia bank chief in subprime warning (FT.com)

Marko Kranjec, Slovenia's central bank governor, caught other European central banks off guard on Monday when he warned that shockwaves from the US subprime mortgage crisis could threaten consumer demand across the eurozone.

"If there is stronger turbulence, the demand of households could well be influenced negatively," Mr Kranjec, a member of the European Central Bank's governing council, told FT Deutschland, the Financial Times' sister paper.

Mr Kranjec's comments suggest the ECB's governing council could have greater concerns about the crisis than previously declared. Only last week, Jean-Claude Trichet, ECB president, had tried to calm the markets.

Mr Trichet and other central bankers are trying to come to grips with the long and short-term effects of the crunch in credit markets. Many European investors have purchased securities linked to US subprime mortgages and some have been adversely affected, including IKB, the German bank that required a state-led bail-out last week.

Mr Kranjec echoed Mr Trichet's sentiment on Monday, though he added: "We might see some further bad news from credit markets - you never know."

He also criticised investors for taking too great a risk. "As long as there were good prospects for cheap money, all rushed in. There was some form of irrational exuberance in the markets. What we see now is a reconsideration of the previous irrational exuberance."

"The economy in the euro area seems to be very dynamic and the growth seems to be sustainable.

"If you look at the fundamentals of the economy and fade out the recent turbulence in financial markets, monetary policy seems to be still accommodative."

Germany's Bundesbank, which declined to comment on the risk to consumers, dismissed concerns last week about the impact of the subprime difficulties in the US on the eurozone and Germany in particular.

Axel Weber, the Bundesbank president, described the upturn in the European economy as "robust" and called the prospects for Germany as "still propitious". He also dismissed concerns that German banks' exposure to the subprime problems in the US could lead to further large problems following the bail-out of IKB.

An analyst at the Bank of Italy expressed surprise that the Slovenian central bank had spoken publicly on the threat to consumer demand. He said: "The markets were very unsettled on Friday. Today they seem a bit calmer but still it seems very unwise for any central banker to even discuss the issue."

Additional reporting by Richard Milne in Frankfurt and Paul Bompard in Rome