"Several governments did not use the time"

Bundesbank President Jens Weidmann, speaking in an interview with the German weekly newspaper DIE ZEIT, said that the euro-area governments were right to insist, in the negotia-tions with Greece, that agreements be honoured. "But, at the end of the day, implementation is key," he added. It was, however, essential that politicians solved the problems rather than shifting them to the central banks. "The Eurosystem is not responsible for ensuring the sol-vency of either banks or governments," Mr Weidmann asserted.

He outlined how, all in all, the measures taken by the Eurosystem to combat the crisis had brought a certain level of calm to the financial markets and bought politicians time, but added that this had also repeatedly sparked, and continued to spark, new calls for monetary policy. "Several governments, including larger euro-area member states, did not make use of this time," the Bundesbank President criticised. The governments in France and Italy had finally accepted that reforms had been put on hold for too long, he pointed out, and this failing was also reflected in these countries' low growth rates. As with all reform plans, implementation was also key. "I sincerely hope that we see success here," Mr Weidmann said, pointing to both countries' huge importance for the stability of the euro area.

Mr Weidmann explained that the disciplining effect of the capital markets on government budgets had been overestimated. The idea, he said, had been for the capital markets to pre-vent any one member state from kicking over the traces. "It did not work," Mr Weidmann conceded, citing Greece as an example, which had been able to borrow money cheaply right up until the outbreak of the crisis despite having already ramped up very high deficits.

Scope for mutualisation limited

Mr Weidmann used the interview to reiterate his qualms over the government bond-buying programme: "I feel the risks and problems entailed in this response outweigh the upside po-tential." He stressed, however, that the criticism he had voiced in the ECB Governing Council had not fallen on deaf ears: "The government bond-buying programme certainly includes el-ements which acknowledge the concerns voiced by myself and others."

International observers often regarded joint liability as a silver bullet, he explained, "but that's not an angle we can take, given our responsibility for Europe's fortunes". Mr Weidmann as-serted that in spite of this, Germany was not isolated in the economic policy debate: "That's not the impression I have gained in the ECB Governing Council, the Eurogroup or in other in-ternational forums." However, he explained, a number of economists – chiefly in the United States – did not consider all the facets of what made European monetary union so unique. "These voices are quick to call for joint liability or monetary financing of the public sector, both of which are prohibited under the European treaties," he said, adding that unlike in the United States, the euro area was not a political union with a single central federal budget, but a community of 19 member states, each with its own national fiscal policy. To curb any in-centive for governments to run up debt, it had therefore been agreed that the assumption of joint liability would be prohibited, and that counted for monetary policy, too. "What this means is that the Eurosystem operates on a different playing field than the US Fed," Mr Weidmann concluded.