BERLIN (MNI) – ECB Governing Council member Jens Weidmann on
Thursday again warned European leaders not to water down the region’s
planned fiscal compact.

“Preliminary results don’t give reason for optimism,” Weidmann said
at an event organized by parliamentarians from Chancellor Angela
Merkel’s CDU/CSU bloc. He noted that the ECB even had to send a letter
to European leaders warning against a loosening of the planned rules.

Weidmann again stressed that the ECB cannot turn to unlimited bond
buys because this is forbidden under EU law. Such a move would blur the
border between monetary and fiscal policy and could quickly undermine
the central bank’s independence and its ability to ensure price
stability, he warned.

“The main task of the ECB is to assure price stability in the
Eurozone,” the Governing Council member stressed. Slowing economic
growth in the Eurozone and moderating energy prices should bring
inflation back into line with the ECB’s stability goal this year, he
reaffirmed.

Weidmann said he was satisfied that markets did not react too much
on the recent ratings downgrade of several Eurozone nations. The central
banker criticized the ratings agencies for pushing their own policy
agenda with their ratings and urged market participants to rely more on
their own judgement than that of the rating agencies.

Turning to Germany, the president of the Bundesbank, said he
expected the domestic economy to move sideways for the moment. GDP might
have contracted slightly in 4Q and could recover somewhat in 1Q, he
said.

Overall, “the conditions for a broad-based upswing still exist,”
the Bundesbank president said, predicting that the German economy would
gain momentum again this year.

Germany does not have to fear a credit crunch, he reckoned. Even if
there may be some deleveraging as a result of new capital requirements
for banks, “fear of a broad credit crunch in Germany are unfounded,” he
said.

Weidmann reiterated the Bundesbank’s forecasts for Germany that see
GDP growth of 0.6% this year and 1.8% next year. He warned, however,
that these forecasts are subject to particularly high uncertainty and
the assumption of no further exacerbation of the debt crisis.

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

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