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FRANKFURT (MNI) – European Central Bank Governing Council member
Jens Weidmann warned Thursday against underestimating the risks from
ultra-expansive monetary policies and said central banks must ensure
that they continue to put price stability above all other goals.

“The easy exit [from the crisis] via central banks surely sends the
wrong signal,” Weidmann, who heads the Bundesbank, said in a speech at a
business conference in Berlin.

“The public must trust that [central banks] will ensure price
stability and not place this goal below any others. Central banks across
the globe have done much to prevent an escalation of the crisis, but
many of the measures taken have unintended consequences,” he said. The
“side effects…of ultra-expansive monetary policy should not be
underestimated.”

In a clear restatement of his well-known criticism of the ECB’s new
bond buying program, Weidmann said central banks must ensure they do not
take on fiscal roles that are the responsibility of governments.

“Fiscal problems fall under the responsibility of governments and
parliaments. And it is up to them to take decisions to finance countries
in emergencies and to take on the associated risks for the taxpayer,” he
said. “Central banks must ensure price stability and not take on fiscal
tasks.”

Weidmann, who opposed the bond-buy program announced September 6,
also said breaking the negative feedback loop between banks and
sovereigns is critical. “It surprises me, given this background, that
the current tendency seems to be to burden national banking systems with
additional risks from government finances,” he said.

Weidmann, who also heads Germany’s Bundesbank, said there has been
some initial progress from countries that are undertaking fiscal
consolidation and structural reforms, but he said “progress to this
point in many cases has not been enough to restore trust in policy.”

While the Bundesbank welcomes efforts to establish a common
European banking supervisor, Weidmann also said there were still
unresolved questions over how the ECB will ensure its mandate of price
stability is protected and kept strictly separate.

“This separation is difficult – difficult from an organizational
perspective and difficult from a legal perspective,” Weidmann said.
“There are a number of questions that have not been satisfactorily
answered.”

Despite his disagreements with current ECB policy, Weidmann
insisted he believes that Germany should remain in the euro. Citing a
recent poll that found 65% of Germans believed Germany would be better
off leaving the euro, he said “I don’t believe that.”

“I believe that Europe still has the chance to emerge from this
crisis stronger,” Weidmann said.

He also reiterated his criticism that Eurozone rescue efforts have
weakened the principle of joint liabilities, and stressed that spreading
risks across the currency bloc must come together with more joint
controls over fiscal policy.

He stressed that a common banking supervisor should only lead to
joint guarantees over new risks taken on by European banks. Existing
liabilities on bank balance sheets should still fall under the purview
of national central banks, he said.

— Frankfurt bureau: +49 69 720 142; email: ccermak@mni-news.com

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