–EMU Firewalls Have Put Enough On The Table, Should Be Used If Needed

By Chris Cermak

NEW YORK (MNI) – European Central Bank Governing Council member
Jens Weidmann Monday said the ECB should only engage in more sovereign
bond purchases if it was needed from a monetary policy perspective, and
not be linked to the policy measures of governments.

Weidmann, taking questions after a speech at the Economic Club of
New York, said Europe and the IMF had put “enough on the table” in terms
of firewalls and again urged governments to use the firewalls if needed
rather than turning to the ECB for more monetary accommodation.

At the same time, Weidmann said he believed markets “exaggerated”
the Eurozone’s current troubles and praised “ambitious” structural
reforms in Spain and Italy that needed to be given time to work. Yet he
also acknowledged the “political uncertainties” facing the Eurozone from
France, The Netherlands and Greece.

Weidmann again made clear the European Central Bank had fulfilled
its responsibilities by calming markets and it was now up to governments
to use the firewalls implemented should risks or yields for EMU
countries again increase.

“There is enough on the table to stretch the consolidation
process for a very long time,” said Weidmann, who is also president of
the Bundesbank.

“Our job now as central banks is to put the responsibility back
where it belongs. We have managed to calm the situation (but) the
underlying problems haven’t been fully addressed, so deal with it. And
if you need time, use your instruments that you have designed. Use the
EFSF, use the ESM.”

Weidmann, a long-time critic of ECB bond purchases, said new
purchases “shouldn’t be linked at all to any policy measures. It’s not
our job to reward or sanction policy makers for their actions. Our job
is to do monetary policy, and if those purchases are needed to implement
our monetary policy, we should do them.”

Weidmann also said any talk of “socializing debt” in Europe would
require a much stronger fiscal framework and greater surrender of
national sovereignty on the fiscal side.

While the fiscal compact agreed by EU leaders took a “first crack”
at the problem, Weidmann said the compact is “not the game changer in
the institutional framework that we would like to have.”

Weidmann also made clear that Germany would need to use
macroprudential tools if needed to counteract the problems of a
pan-European monetary policy that was clearly too accommodative for the
German economy.

“It is clear that monetary policy for the German economy is too
expansionary,” Weidmann said, but noted the ECB’s goal “is to ensure
price stability for the euro area as a whole.”

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,M$X$$$,M$$EC$,MFX$$$]