–Warns There Is “Something Deceptive” About Calm In Financial Markets
–Must Do More To Clean Up Banks, Pursue Reform Path

COPENHAGEN (MNI) – Saturday’s wage deal, which gives a 6.3% pay
raise two million German public-sector workers over a 24-month period,
should not be copied in other sectors, Bundesbank President Jens
Weidmann warned Saturday.

“For us [in the European Central Bank], the extent to which high
oil prices will feed into second round effects is key,” Weidmann said.
“Against this background, the deal should not be a role model for other
areas.”

Speaking during a press conference after the Informal Ecofin
meeting in Copenhagen, Weidmann cautioned that Eurozone governments must
not use the relative calm in financial markets as an excuse to delay
reform efforts. More reform is needed particularly in the banking
sector, he said.

“The focus of the debate [during the meetings] was the debt crisis.
It has become clear that the situation has calmed over the past weeks,”
Weidmann said. However, “there is also something deceptive about the
apparent calm,” he cautioned. “Europe must not make the mistake of
postponing important measure only because the immediate pressure has
receded.”

Weidmann said “it is clear that Europe is suffering from a
confidence crisis, and confidence can only be regained if agreed
measures are being implemented and the causes of the crisis are being
addressed.”

Any calls to take advantage of the easing tensions in order to
provide more support for the fragile recovery are a cause for concern
and should not be heeded, he said. “They are nothing else but attempts
to deviate from the necessary reform path.”

In particular, countries in bailout programs must stick to their
agreements, and the fiscal compact must be implemented strictly,
Weidmann said. Spain’s decision to unilaterally change its deficit
target underlined that the compact can only be credible if all members
stick to its spirit, he said.

Weidmann also argued that not enough effort is being made to clean
up the banking sector and individual banks’ balance sheets. Reforms must
be stepped up “especially in those countries that have made particularly
strong use of our three-year tenders,” he said.

While stabilization measures – including the firewall agreed by
ministers earlier in the week – are necessary, they are not without
risks, Weidmann cautioned. “Just like other medications, it has risks
and side-effects and these will become ever greater the longer the
medication is in place without healing the actual disease.”

–Frankfurt bureau tel.: +49-69-720 142 Email: jtreeck@marketnews.com

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