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BERLIN (MNI) – ECB Governing Council member Jens Weidmann said
Friday that Greece might need another debt haircut at the end of its
current fiscal consolidation and reform program.

Speaking at a conference organized by the German daily Sueddeutsche
Zeitung, Weidmann said one could not deny the fact that Greece’s public
debt is currently not sustainable.

“The question if the necessity of a debt haircut arises from this
is in my view open,” said Weidmann, who is president of the German
Bundesbank.

“One could ask…if it would not make sense to propose a haircut –
which one will need in the end to gain access to capital markets again –
if the reforms, which really matter, have been carried out,” the central
banker said.

“The question is, if this could not be an incentive to carry out
the reforms,” he said.

Weidmann argued that Greece was an exceptional case and the country
was likely to depend on fiscal aid for many years. Portugal and Ireland,
however, prove that reform programs can be successful, he said.

In other remarks, Weidmann reaffirmed his rejection of the ECB’s
new bond-buying program, the OMT, arguing that it was not within the
central bank’s mandate and was blurring the borders between monetary and
fiscal policy.

“The way via the central banks is in the end politically the most
comfortable but not automatically the best one and also not the one
which was foreseen in the [EU] treaties,” Weidmann argued.

The central banker said it was alarming that decisions which should
actually be taken by democratically legitimized parliaments were now
being pushed on independent institutions like the ECB which are not
under parliamentary control.

He also warned that the OMT could take off pressure of governments
to undertake the necessary reforms. “The root causes [of the crisis] can
only be fixed by the states,” he said.

Weidmann claimed he was not isolated on the ECB Governing Council
with his position. “Naturally there are also other colleagues in the ECB
Council who are also worried and see the risks that the monetary policy
gets on the coat-tails of fiscal policy,” he remarked.

Weidmann said he had no intention of stepping down in protest from
the ECB Council as his predecessor Axel Weber or the German Executive
Board member Juergen Stark had done. Their resignations did not have
much impact, he said. Rather, it is important to stay on the Council and
lobby for the Bundesbank positions, he said.

The Bundesbank president said he hoped that the German
Constitutional Court, which is to rule if the OMT is legal under the
German constitution, will support his rejection of the program. “That is
why I’m awaiting [the ruling] with eagerness,” he said.

Weidmann warned that the OMT will make it more difficult for the
ECB to credibly work for price stability in the Eurozone in the future.
“That does not mean that I see immediate inflation dangers,” he added.

He again rejected fighting the crisis by allowing higher inflation,
arguing that “once you have higher inflation you won’t be able to
control it anymore.”

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

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