BERLIN (MNI) – European Central Bank Governing Council member Jens
Weidmann on Monday warned against overburdening the ECB in the battle to
overcome the sovereign debt crisis in the Eurozone.
In a draft of a speech to be delivered in the German city of
Duesseldorf, the Bundesbank president pointed to “exceptional
challenges” from the crisis for governments and central banks.
“For central banks this poses significant risks,” Weidmann
cautioned. “Due to their great credibility and previous successes, the
expectations of their contribution to crisis-fighting are large – so
large that an overburdening of central banks is lurking.”
The Governing Council member stressed that the main causes of the
crisis – lack of competitiveness, high public debt and weak financial
systems in some member states – cannot be solved by monetary policy.
“Central banks are not almighty,” Weidmann said. Stability cannot
be brought about solely by focusing on short-term containment of the
crisis irrespective of its medium-term consequences, he argued.
Weidmann conceded that a European banking union could be an
important contribution to breaking the negative feedback loop between
the banking system and public finances.
However, a banking union should not be used to collectivize past
bank debt, he insisted. “Risk-collectivization of balance sheet losses
can only be legitimized for the future,” he argued.
Weidmann demanded a clear separation of banking supervision and
monetary policy, should the ECB become the new EU financial watchdog.
“This separation is difficult,” he remarked. “There are a series of
questions which have not been satisfactorily answered.”
While noting that the sovereign debt crisis still does not seem to
be contained, Weidmann acknowledged that Italy, Spain, Portugal and
Greece had made progress on regaining competitiveness.
“Despite the achieved progress there is still a long way to go,” he
cautioned.
–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com
[TOPICS: M$X$$$,MGX$$$,M$$CR$,M$$EC$,MT$$$$]
