BERLIN (MNI) – Any future bailouts in the context of public debt
crises in the Eurozone must come at a cost to creditors, ECB Governing
Council member Axel Weber said Wednesday.

Given that a further public debt crisis cannot be ruled out
completely in the future, an orderly crisis mechanism is needed, the
central banker argued in remarks prepared for delivery at a reception in
the German Embassy in Paris.

“In order not to distort incentives for investors, private
creditors should not be let out of their responsibility in such an
orderly crisis mechanism,” Weber insisted.

“Thereby, I want to explicitly emphasize that such a mechanism
should be implemented only at the end of the crisis and should not apply
to existing contracts,” he added.

There is no doubt that the emergency measures adopted to stabilize
the Eurozone have unsettled EMU, he said. “The fundament has been
damaged, now it has to be repaired and improved,” Weber said.

Fiscal aid for Greece and the creation of the European Financial
Stability Facility (EFSF) had a stabilizing effect, the central banker
acknowledged. “It cannot be denied, however, that they have heavily
strained the fundaments of the currency union,” he reckoned.

Still, Weber said that the ECB welcomed the request of the Irish
government for financial aid from the International Monetary Fund, the
European Union and the Eurozone member states.

“We are confident that this program will contribute to assuring the
stability of the Irish banking system and to bring it in a position to
meet its role for the functioning of the economy,” he said.

Weber again urged Eurozone member states to step up their budget
consolidation efforts.

“The confidence in the solidity of public finances of member states
is not unlimited,” he cautioned. “Pushing consolidation away for too
long would mean to risk that confidence.”

The Governing Council member said he did not share fears that a
stepped up consolidation course could choke the economic recovery.

“To the contrary: consolidation strengthens confidence in the
sustainability of public finances and this is an important precondition
for healthy economic growth in the whole Eurozone,” he reasoned.

“The current crisis is a major challenge for the currency union.
But I’m confident that the challenge will be mastered and that the
currency union will emerge strengthened from the crisis,” the Bundesbank
president stressed.

Furthermore, fiscal rules in the EU need to be tightened and
structural reforms for sustainable and strong growth undertaken, Weber
demanded.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

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