FRANKFURT (MNI) – On the whole, the member states of the euro area
are on the right path to overcome the sovereign debt crisis, European
Central Bank Governing Council member Axel Weber said Tuesday.

Weber, who is head of the Bundesbank, said at the city of
Frankfurt’s annual reception that the recovery in Germany would remain
strong even if it moderated somewhat, according to a text provided by
the German central bank.

Germany might reach its pre-crisis level by the end of the year, he
said, predicting a further strengthening of domestic impulses and
support from the global rebound.

The roots of the sovereign debt crisis typically extend back in
time to before the crisis, so blame for the difficulties should not be
assigned to financial markets but rather to the fiscal policies of
Eurozone governments, he said.

Fundamental data are the driving forces of the crisis and those
states affected must see to it themselves that they rebuild lost
confidence by reducing debts and deficits, he said.

“Overall, I see the euro countries on the right path here,” Weber
said, pointing to efforts at the EU level to strengthen the Stability
and Growth Pact and introduce an additional mechanism for monitoring
member states’ fiscal affairs.

“However, more automatic sanctions would be desirable here; a
quantum leap would be better than just a gradual firming of the Pact,”
he said.

Since future crises cannot be fully excluded, a permanent mechanism
is needed, the Bundesbank chief urged. Such a mechanism should provide
help only when the stability of monetary union is at issue, he insisted.

“Furthermore, for the prevention of false incentives, the principle
of exemption from liability must not be annulled,” he said. “And
finally, concrete aid provision should be tied to strict conditions.”

Success on the fiscal front would lessen risks to the real economy,
Weber noted. For the moment, the Bundesbank expects for Germany “that
the recovery will continue strongly but with moderate momentum.”

The German economy could by the end of this year reach pre-crisis
levels, Weber said, reiterating the prediction of 3.6% GDP growth for
the year that just ended.

“Particularly gratifying is that in addition to foreign trade,
domestic economic growth forces will also increasingly gain in
influence,” he continued.

“Thus, private consumption — already surprisingly robust in the
crisis — is likely to be further reinforced by the advantageous labor
market situation,” he argued.

“In addition, investment activity will presumably pick up
noticeably,” Weber added.

However, the “in part painful adjustment processes” in Germany’s
banking sector will probably continue, he said.

–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com

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