FRANKFURT (MNI) – The fiscal compact European leaders signed off on
Monday is not the basis for a genuine fiscal union that would justify
further pooling of sovereign risk within the Eurozone, European Central
Bank Governing Council member Jens Weidmann said Wednesday.

“It is clear that the cornerstone has not been laid for a genuine
fiscal union in which national sovereignty is transferred to a European
level,” Weidmann said in a speech text provided by the Bundesbank.

Weidmann’s assessment contradicts that of ECB President Mario
Draghi, who said earlier this week that the “fiscal compact treaty is a
step towards a fiscal union.”

To the head of the German Bundesbank, however, it is clear that
governments are not ready to surrender national sovereignty and that
they have chosen merely to maintain the existing framework, though with
tighter rules.

Increased common liability, to say nothing of Eurobonds, cannot be
justified in the absence of power for European authorities to intervene
when individual nations violate the fiscal rules, Weidmann said. Under
no circumstances, he stressed, can there be a “massive redistribution
and collectivization of solvency risks” within the Eurozone.

Weidmann also observed that agreements in Brussels once again fell
short of previously stated intentions. “Obviously it ended — as so
often in the past — with a loosening of the fiscal pact in the
negotiation process,” he said.

“The guidelines for national fiscal rules still allow considerable
room to maneuver, and at the European level there is no control over the
extent to which they are in fact adhered to,” he lamented. “A
particularly strict implementation of the new procedures of the
Stability and Growth Pact is, in my opinion, also not apparent at the
moment,” Weidmann said.

Weidmann reiterated his long-standing position that the current
crisis cannot be overcome by throwing increasing sums of money at it.
What is needed, he said, are economic reforms and a sound Eurozone
framework that maintains the right incentives for sound fiscal policies.

The “course of the crisis up to now should have made clear that the
approach of fighting the crisis with more and more money has its limits
– limits of political acceptability, of financial possibilities and thus
also of credibility,” he said.

“In my view, it is particularly problematic that the innate
incentives for solid government finances are being threatened,” Weidmann
said.

Ensuring the “permanent task” of monetary stability, he said, “is
made considerably more difficult if the underlying conditions for a
stability-oriented monetary policy are not properly created.”

Weidmann also reiterated that “the financing of governments via the
printing press is forbidden for good reason. Central banks that allow
themselves to be put in the service of fiscal policy risk their own
credibility and thus endanger medium- to long-term monetary stability.”

–Frankfurt Bureau, tel.: +49-69-720 142, email:frankfurt@marketnews.com

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