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BERLIN (MNI) – European Central Bank Governing Council member Jens
Weidmannn on Thursday warned against using the ECB for aims beyond its
mandate.

“Unlimited government bond purchases or a financing of the rescue
funds by the central bank [via a bank licence], as has repeatedly been
demanded, not only overstretch the mandate of central bank, but they are
incompatible with it,” Weidmann said in a a speech delivered at an award
ceremony in Berlin Thursday evening.

“Public deficits must not be financed by the means of the printing
press,” Weidmann, who is president of Germany’s Bundesbank, stressed.

He noted that during the course of the financial crisis the
Eurosystem [the ECB and its 17 constituent national central banks] had
already taken on substantial risks to its balance sheets and broadly
stretched its mandate.

“The problem is that we’re increasingly pressured to make far
reaching decisions for which we’re, in my view, not democratically
legitimated,” Weidmann elaborated.

“For the rest, it should be clear that these balance sheet risks
are also risks for the reputation and credibility of the central banks,”
he cautioned.

The Governing Council member once again stressed that “monetary
policy cannot solve the crisis in the Eurozone.” Rather, governments
must address the root causes of the crisis and make fundamental
political decisions, he argued.

“The currency union can only be lastingly stabilised if politicians
agree on a consistent and credible framework,” Weidmann insisted.

He criticized Eurozone leaders for deciding at their latest summit
to further loosen the necessary conditionality for fiscal aid granted to
ailing member states.

“Liability and control must be brought back into balance,” he
demanded. “It is astonishing that some think that you can win back
confidence by breaking the law.”

Regarding the summit decision for a European banking union,
Weidmann cautioned that “this is no short-term instrument for the
solution of existing problems.”

A joint European bank supervisory system can become “an important
part” of a deeper integration of the currency union, the Governing
Council member argued. But he cautioned that potential conflict of
interests had to be solved if the ECB should take on these supervisory
functions.

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

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