DUESSELDORF, Germany (MNI) – The measures taken by Europe to ensure
fiscal stability have damaged the foundation of monetary union, European
Central Bank Governing Council member Axel Weber asserted Monday.

According to a speech text distributed by the Bundesbank, which he
heads, Weber conceded that it was “necessary and justifiable” to agree
on fiscal aid for Greece, on a E750-billion rescue fund for the Eurozone
and on its use by Ireland.

“As necessary and justifiable as the decisions may have been, one
must however note that the fiscal stabilization measures have jarred the
foundations of the monetary union and damaged its base,” he charged.

That base consists of an independent system of central banks
responsible for a common monetary policy committed above all to price
stability, he observed.

But it is also a fundamental principle of EMU that fiscal policy
remains in the purview of each individual member state and that no
member is responsible for another’s debts, said Weber, who recently
announced his departure from the Bundesbank and withdrawal from
consideration as possible successor to ECB President Jean-Claude
Trichet.

The crisis mechanism cannot become “the gateway for
institutionalized transfer payments,” Weber insisted. For that reason,
he continued, proposals that might be associated with “intransparent”
transfers between member states or that might undermine the principle of
conditionality tied to aid “are to be strictly rejected.”

Among these measures are so-called Eurobonds, given the “fatal
incentives” these would create, he said, as well as the purchase of
sovereign debt on the secondary market, “independent of whether the
crisis fund buys the bonds and passes them on or the respective member
state buys its own debt back with the help of an ESM loan at a favorable
interest rate.”

“This is so not only for the future ESM, but also for the current
euro rescue fund,” he said. “The promised relief of the strain on the
Eurosystem is not a convincing argument for me. In general it is so that
we should avoid at all cost everything that is indeed effective in the
short term because it lets us buy time, but is counterproductive for
durable and sustained crisis management.”

The countries beset by fiscal problems have only managed the “first
10 or 15 kilometers” of the marathon they must run, Weber affirmed. The
greatest pain is thus yet to come, he added.

Still, Weber was not entirely pessimistic. “I … do not see the
continued existence of the euro in danger,” he said. “The monetary union
is and remains a success story: the euro is a stable currency, for trade
in the European internal market it has proven to be of clear advantage,
and in the financial crisis as well it has proven to be an important
stabilizing factor.”

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

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