FRANKFURT (MNI) – The world economy has clearly weakened over the
last few months, while Germany’s own economy is also being increasingly
threatened by the worldwide slowdown and Eurozone crisis, Bundesbank
board member Andreas Dombret said Monday.

Dombret warned the International Monetary Fund against pressing for
monetary policy solutions to the Eurozone’s crisis, arguing that calls
for the European Central Bank to conduct quantitative easing amounted to
monetary financing.

“The Bundesbank regrets that the repeated policy recommendations of
the IMF often overemphasize monetary policy as the solution to the
current economic challenges,” Dombret said ahead of the IMF’s annual
meetings taking place at the end of this week.

“In this context, the Bundesbank also views critically the explicit
recommendations addressed to the Eurosystem by the IMF. The repeated IMF
calls for measures to ease monetary policy through ‘quantitative easing’
are problematic on the basis of their closeness to monetary state
financing and inherent spreading of solvency risks between member

Dombret said European Union member states could not ignore the need
to undergo structural and fiscal reforms to solve the crisis.

“In this context, the Bundesbank supports the IMF’s calls for a
committed execution of confidence-building measures by the euro
members,” Dombret said.

The Bundesbank expects Germany’s economy weaken this year and sees
growing downside risks for 2013, he said.

“The weakening global economy has also had an impact on Germany and
harmed its economic outlook, despite structurally sound conditions,” he
said. “The Bundesbank expected a weakening of growth over the course of
2012. There are also increasing risks for 2013.”

A worsening of the Eurozone sovereign debt crisis in particular
could aggravate “the lack of confidence and have an increasing impact on
the domestic economy and employment situation,” he said.

But, he added, the IMF should not ignore risks to the economic
outlook from outside of the Eurozone, notably the consolidation efforts
in the United States.

Dombret said the Bundesbank supports increasing the IMF’s firepower
to deal with global crises – a step that has been agreed by ministers at
past IMF meetings but is yet to be completed – but he stressed the
planned increase to nearly $750 billion should be used only in
emergencies and not be viewed as part of the IMF’s regular arsenal.

The bilateral credit lines between countries and the IMF amount to
“extraordinary and timely limited emergency reserves. A continued use of
resources by the IMF through such instruments would not be in the spirit
of the IMF’s creation as a quota-based institution.”

— Frankfurt bureau: +49 69 720 142; email: —

[TOPICS: M$X$$$,MGX$$$,M$G$$$,M$$CR$,M$$EC$,MT$$$$]