–Adds More Weber Comments To Story Sent At 11:21 GMT

BERLIN (MNI) – A new framework within the Eurozone to deal with
crises should allow for the orderly restructuring of sovereign debt,
European Central Bank Governing Council member Axel Weber argued
Thursday.

The main challenge for fiscal policy is to restore trust in public
budgets damaged as a result of the crisis, the hawkish Bundesbank
president, said in a speech at an event in Berlin.

Concern that a quick and decisive budget consolidation could
strongly hurt economic recovery, “is not an argument against such
action,” Weber said.

In answering audience questions he argued that all EU states should
have balanced budget amendments like the one Germany has. He said even
Germany should accelerate its public deficit reduction effort, though he
predicted that the German shortfall would be back below the EU’s
3%-of-GDP limit by next year.

He said the problems being encountered by the peripheral EMU
states, which are at the root of the Eurozone’s debt crisis, will likely
persist. The spreads between different government bonds within the
single currency bloc are “necessary” because they help produce better
budget discipline, he said.

At the EU level, “the strengthening of the fiscal body of rules and
the supervision of macroeconomic developments without doubt create more
stability,” Weber argued.

“It is, thus, also necessary to have an effective mechanism for
crisis management,” he emphasized.

For the EMU, “measures for the management of crises must be formed
in a way that produces the least possible distortion of the incentive
structures for member states,” he explained.

Thus, “it is indispensable to return to credibly anchoring the
principle of non-liability,” he urged. This ultimately includes “the
establishment of a future body of rules for an orderly restructuring of
public debt.”

The “overriding task in the short term is consolidation of public
budgets,” in order for public authorities to regain the confidence of
financial markets, Weber stressed. This is a task that every EMU member
state faces, he added.

Weber also said that Germany’s budget deficit this year would
“clearly” be below 4% of GDP. The country’s total debt ratio will likely
rise to above 80% of GDP, he predicted.

Turning to monetary policy, Weber reaffirmed that the ECB is
completely independent to conduct a stability-orientated policy. “I
don’t see any hurdles to doing this,” he said, adding that the most
important job a central banker has is to fend off demands from
politicians.

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

[TOPICS: M$X$$$,M$$EC$,M$G$$$,MGX$$$]