–Adds More Comments By Weidmann And EFSF Head Regling

BERLIN (MNI) – European Central Bank Governing Council member Jens
Weidmann on Monday reaffirmed his criticism of the purchases of
sovereign bonds of indebted Eurozone states on secondary markets.

“Bond purchases by central banks have to be seen especially
critically because they blur the border between monetary and fiscal
policy,” Weidmann, who is president of the Bundesbank, said in a hearing
in the German parliament.

Weidmann argued that the EU-IMF loans to the highly indebted
Eurozone states are more efficient instruments than bond purchases
either by the ECB or the European Financial Stability Facility (EFSF).
“I would advise to focus on other instruments … there are more
efficient measures than bond buys on secondary markets,” he argued.

He reaffirmed his stance that Greece should not get any more
payments if it does not meet the agreed consolidation and reform goals.

Yet, the central banker refused to detail what the consequences of
a Greek default would be. “Nobody will be able to give you a reliable
scenario,” he said, adding that it will be in any case “a relatively
uncomfortable scenario” for Greece and the rest of the Eurozone.

Weidmann said that Greece is an “exceptional case” in the debt
crisis. Ireland, however, is a good example that the reform measures can
work, he said.

Overall, the current account imbalances in the Eurozone, due to the
lack of competitiveness in some member states, are the root cause of the
debt crisis, he asserted.

Weidmann strictly rejected the idea that the EFSF should get a bank
license to refinance itself via the ECB. This would be “very dangerous,”
because it would mean a de facto monetarisation of public debt.

EFSF chief executive Klaus Regling said at the same hearing that
the triple-A rating of the rescue fund is currently not in question.
Regling said he does not expect that one of the triple-A countries
backing the fund could be downgraded, “insofar there is also no danger”
that the EFSF could be downgraded, he reasoned.

Regling said he a also does not see the risk that the planned
increase of the legal rights of the German parliament to approve aid
measures could prompt a downgrade of the EFSF.

Regling also said he assumed that all parliaments of the Eurozone
member states will finally approve the planned reform of the EFSF.

Weidmann said one can be “quite critical” of the role the rating
agencies have played in the crisis. Still, he said he was “rather
skeptical” that it will be possible to create an European rating agency
“that will make more sense than that what is already existing.”

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

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