Central Banks

Sunday, December 11, 2011 - 18:25

ECB Weidmann: EU Summit Decisions Represent Progress: Paper

FRANKFURT (MNI) - The decisions reached Friday by the EU Summit represent progress, European Central Bank Governing Council member Jens Weidmann said in an interview published over the weekend.

Weidmann, who heads the German Bundesbank, told Frankfurter Allgemeine Zeitung he had always stressed that "we need dependable prospects for solid government finances in the individual member states. I do indeed see progress here as a result of the summit decisions."

In particular, he noted that the agreement to enshrine strict deficit limits in national constitutions "can make a major contribution," and that the Stability and Growth Pact will now be better insulated from political whims.

"It now depends decisively on these goals not being watered down again in the course of designing and applying them," he stressed. "And all parties must implement what was announced. Without this, any solution to the crisis will fail."

Weidmann urged that aid between member states be granted only as a last resort and under strict conditionality. "And it would be fatal to completely annul the disciplinary effect of increasing interest rates."

Whether the ECB is under pressure or not to buy more bonds of countries in crisis "does not matter," he said. "The crisis summit has confirmed that the resolution of the crisis is the task of governments

-- via reforms in their own countries and if need be via assistance to

other countries."

He continued: "The mandate for a redistribution between the taxpayers of the member states is unambiguously not part of monetary policy. Financing government debt via the printing press is and remains forbidden by treaty."

Eurobonds, he reiterated, "would not solve, but rather intensify the basic problems of the sovereign debt crisis. They would undermine the necessary incentives for solid fiscal policy."

Asked if inflation would return to Europe following the crisis, Weidmann replied that the Eurosystem's task is ensuring price stability.

"It achieved this before the sovereign debt crisis and it will ensure this during the sovereign debt crisis and afterwards," he said.

-- Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com

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