–Criticizes Central Bank Involvement In Greek Aid Program
–Greek Debt Haircut Possible In Future, But Now Would Be Wrong Time
FRANKFURT (MNI) – Concerns about financial stability mean the
European Central Bank will be hard-pressed to pull out of any future
sovereign bond-buying program, even as its credibility is being put to
the test, ECB Governing Council member Jens Weidmann warned in an
interview with the German weekly Welt Am Sonntag, published Sunday.
Weidmann, who heads Germany’s Bundesbank, said he did not doubt the
resolve of his fellow ECB Governing Council members to stop any
so-called OMT bond purchases should a country fail to live up to its
fiscal commitments under the program.
But he argued: “Just when this commitment has to be proven, the
pressure will be especially high not to stop the purchases, in the name
of financial stability. When in doubt, one is always tempted to weigh
short-term crisis management more heavily.”
The ECB has said it will buy the sovereign bonds of an EMU member
state only if it applies for a program under the ESM rescue fund and
continues meets the attached conditions unswervingly. Weidmann
reiterated his concern that the ECB’s monetary policy has been
inappropriately linked to fiscal policy actions as a result of the OMT
program.
“One can question how independent monetary policy is when it links
its actions in this way to economic and fiscal policy processes. How
credible this conditional path is remains to be seen,” he said.
Weidmann also criticized the Eurogroup’s recent deal on Greece for
keeping central banks involved over the long-term, through the continued
rollover of short-term debt held by Greek banks, which in turn are
backed by central bank liquidity.
“Until now the plan was to largely roll back these short-term
T-bills. There is no talk of this anymore. I view this with concern,
because central banks are therefore meeting a portion of the financing
needs,” he said.
Weidmann did praise Eurozone governments for agreeing a package of
measures to reduce Greece’s debt load without implementing a full debt
haircut, and he seemed to back German Chancellor Angela Merkel’s line
that a debt haircut remains a possibility going forward.
“I believe it is correct not to undertake a comprehensive debt
haircut at this moment. That would mark a comprehensive transfer that
rewards past program missteps without solving Greece’s underlying
problems,” Weidmann said. “For that reason, my position is that a future
debt haircut – if at all – should be put forward only in the case that
the reform path has been successfully undertaken.”
Weidmann also reiterated that shifting responsibility for EMU-wide
banking supervision to the ECB will require a treaty change. He stressed
he is not against the idea of a common banking supervisor in principle,
but that “conflicts of interest” between supervision and monetary policy
must be avoided.
“I do not see how it is possible to shift supervisory
responsibilities to the ECB under the currently foreseen legal basis,”
he said. “A clean legal solution in my view requires a change in the EU
treaties.”
Weidmann denied this had to be a long process, arguing policymakers
could speed up the decision making process if they “truly want a banking
union.” In any case, he argued that a common banking supervisor could
not be up and running in 2013.
On Germany, Weidmann denied that the Bundesbank was warning of a
housing bubble, noting only an increase in the pace of housing price
increases, especially in cities. These gains, he said, are being driven
by a variety of factors, including low interest rates and a search for
safety in the Eurozone crisis, but they are also the result of decades
of stagnant prices compared to other major international cities.
“We are not yet talking about a bubble and are certainly not
causing panic,” Weidmann said. “A bubble would include a strong increase
in housing credit, but this is not the case.”
— Frankfurt bureau: +49 69 720 142; email: ccermak@mni-news.com
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