–Adds Comments on Financial Regulation to Story Sent at 08:50 GMT

OESTRICH-WINKEL, Germany (MNI) – European governments have made it
clear that there will be no sovereign defaults in the Eurozone, European
Central Bank Governing Council member Axel Weber said Friday.

Greece did the right thing by turning to the IMF and the
international community to help it get out of its fiscal mess, the
president of Germany’s Bundesbank told an audience at a business school
here.

Nevertheless, Greece must remain an “absolute exception” going
forward, Weber underscored, pleading for tougher budgetary rules in
Europe.

“The European governments have made clear that there will be no
sovereign defaults in the euro area,” he emphasized, pointing out that
they have not only put their signatures on this commitment but also one
trillion dollars in loans and guarantees, agreed to in May.

In the future, however, governments will have to consolidate their
budgets on their own, and sanctions must be levied against offenders, he
argued.

“Greece has done the right thing, Greece has turned to the IMF,” he
said. “Greece has now the program which will help, with the help of the
IMF and the international community, to get their house in order,” he
said.

“The pressure that the international community provides for Greece
to embark on a sustainable path will help them to put through the
necessary reforms,” he elaborated.

“In my view future, growth will be more resilient because it will
not be based on fragile financial systems. So a crisis like the last one
cannot happen again,” he explained. “Growth is only relevant as long as
it is sustainable.”

Once the recently agreed Basel III bank reforms “are in place, I am
certain that they will do the trick in leading to a more resilient
financial system,” he argued.

Weber rejected criticism that the regulations did not “strike the
right balance between stability and resilience of the financial system
and its ability to finance growth.”

He said he would like to see a future where there can be “an
orderly dismantling” of even large financial institutions, but conceded
that this is “easier said than done.”

The financial crisis “is still with us,” he reminded. “I can
promise you that the financial crisis like the one we’ve seen will not
happen again, once new legislation is put in place,” he insisted, noting
that incentive structures would change.

But he warned: “Never be sure a new crisis will not happen again,
the market out there is very dynamic.”

“We need to be vigilant. We need to revisit the current legislation
every 2-3 years” to see how markets react to legislation and see if
loopholes need to be closed. “That is something that we really learned
in this crisis.”

“The new standards are an important next step, [but] they are not
the last step. I can promise you, we will try to keep up” with market
innovation to see if new regulation is necessary, he assured.

–Frankfurt bureau; +49-69-720142; tbuell@marketnews.com

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