The European Central Bank cannot solve the eurozone crisis, Bundesbank chief Jens Weidmann told economists on Sunday, pressing the bloc’s governments to get their economies in shape and tighten their fiscal rules.
Weidmann addressed an economists’ conference in Aix-en-Provence, southern France, only three days after the ECB broke with precedent by declaring that it intended to keep interest rates at record lows for an extended period and may yet cut further.
“Monetary policy has already done a lot to absorb the economic consequences of the crisis, but it cannot solve the crisis,” Weidmann said in his speech.
“This is the consensus of the Governing Council. The crisis has laid bare structural shortcomings. As such, they require structural solutions.”
Weidmann, widely recognized to be the most hawkish member of the ECB’s 23-man Governing Council, does not want the bank to intervene too strongly in tackling the bloc’s economic crisis, thereby allowing governments to soft-pedal reforms.
He spoke a day after fellow ECB policymakers Christian Noyer and Benoit Coeure said the bank’s decision to abandon its customary insistence that it never precommits on policy was a change in communication but meant no change from its strategy, which is based on monitoring inflation, real economy and monetary developments.
“The eurozone is on the mend, it must be at peace, protected, be allowed to heal,” Coeure told the same conference on Sunday to explain the ECB’s decision to issue such forward guidance, while urging governments to tackle structural problems.
The EU’s top economic official, Olli Rehn, welcomed the ECB’s move, saying the step – taken in response to turbulence caused by the US Federal Reserve’s plan to slow monetary stimulus – was needed to preserve recovery in Europe.
“The United States and Europe are at different points of the economic cycle. While the US has a more restrictive approach, Europe needs to continue with a more accommodative policy,” the EU monetary affairs commissioner said.
While he does not see sufficient support in the eurozone for governments to give up sovereignty on fiscal matters to forge a fiscal union to prevent such crises in the future, Weidmann pressed them to stiffen Europe’s fiscal rules.
“To fully unleash the common currency’s potential, efforts are needed on two fronts: structural reforms as well as the abolition of implicit guarantees for banks and sovereigns (government bonds),” Weidmann said. [Reuters]