BERLIN (MNI) – European Central Bank Governing Council member Jens
Weidmann on Tuesday argued against further purchases by the central bank
of bonds of highly indebted Eurozone member states.

In a draft for a speech to be delivered at a business conference in
Cologne, Germany, Weidmann remarked that the balance sheets of the
Eurosystem are already burdened “with significant risks.”

“I’m decidedly of the opinion that [these risks] must be reduced
now and not increased,” said Weidmann.

The central banker criticized Eurozone governments for lack of a
comprehensive vision for reform of the institutional framework of
monetary union.

“The measures already undertaken and planned are shifting the
balance of the framework in a direction which is not sustainable over
the long term,” he argued. “This could weigh significantly on the
acceptance of the common currency.”

The Bundesbank head noted that German citizens were already worried
about the euro. “I take these worries seriously,” he stressed.

“As president of the Bundesbank and member of the ECB Council it is
my prime obligation to assure the long-term stability of the euro,” he
underlined.

The central banker said he views critically “significant parts” of
the reform of the European Financial Stability Facility (EFSF) because
it weakens national responsibility for fiscal policy.

Lowering borrowing rates on the financial aid by the EU and the IMF
for highly indebted Eurozone member states considerably reduces the
incentives for these states to undertake necessary fiscal and economic
reforms, he reasoned.

The planned purchase of sovereign bonds by the EFSF on the
secondary market “is further weakening the incentives for an appropriate
fiscal policy,” he argued.

Once again, Weidmann rejected the idea of joint eurobonds as a
solution to the crisis. Even if fiscal policy were shifted to the
European Union level this would still be not a good idea, he said. “In
my view, the risks of eurobonds far outweigh their advantages.”

The main task for the fiscally ailing countries is now to regain
confidence in the stability of public finances through extensive
consolidation and reform measures, Weidmann said, adding that there was
still a long way to go.

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

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