MEXICO CITY (MNI) – The Germany economy will soon start to pick up
speed again, provided there is no intensification of the sovereign debt
crisis, which up to now has had limited impact on the Eurozone’s largest
member state, European Central Bank Governing Council member Jens
Weidmann said Friday.

Speaking at the IIF conference taking place prior to the meeting
here of G-20 finance ministers and central bank governors, Weidmann, who
heads the Bundesbank, said that Germany was doing a lot to help its
partners and Greece must fulfill its commitments if there is to be
further assistance.

It is wrong to criticize Germany for not making use of supposed
room for fiscal maneuver, and wrong to think the crisis can be solved by
dint of money alone, he said.

“Although the German economy has lost momentum over the past few
months, we expect GDP growth to pick up soon,” he said. “This
expectation is, of course, predicated on the assumption that the
sovereign debt crisis will be overcome step by step and will not further
intensify.”

As to Greece, “some progress has been made during recent weeks,” he
allowed. “Let me say that I fundamentally welcome the fact that the
euro-area finance ministers came to an agreement on Monday regarding a
second financial assistance programme for Greece.”

He continued with a warning: “In order to achieve a turnaround and
allow further assistance, it is now essential for Greece to deliver on
the promises that have been made. Ultimately, Greece cannot be forced to
comply with the programme. But it should be clear that no further
disbursements will be warranted if Greece fails to keep its side of the
bargain.”

Weidmann criticized the “popular misconception” according to which
“Germany, while itself managing to dodge the flames of the current
crisis, is now selfishly refusing to come to the aid of the stricken
countries by acting as chief firefighter.”

Actually, “Germany is doing a great deal to help its partners,” he
argued, noting the country’s large financial share in containment
measures and its support for reforms and discipline.

“Germany is not trying to force its own economic philosophy on
others, but rather is living up to its responsibility to ensure a stable
and sustainable monetary union,” he affirmed.

Urging EMU member states to bolster confidence via fiscal
consolidation, which he called “unavoidable” and “less contractionary
than is often assumed,” Weidmann rejected as “inappropriate” complaints
that Germany is not using its own supposed fiscal leeway.

The benefits deriving to the European periphery from more
expansionary fiscal policy in Germany would not approach the risks of
deviating from the path of fiscal virtue, he argued.

Although it is “crucial” to establish ring-fencing measures to
counter any possible worsening of the crisis, demands that the
Eurosystem play a stronger role here overlook the great contribution of
the Eurosystem through its unconventional measures, he said.

“This has already stretched central banks’ mandate significantly,
and going even further would undermine the credibility of monetary
policy,” he cautioned.

“This leads to a more general point,” he added. “The crisis cannot
be resolved solely by throwing money at it. While money can buy us time
to tackle the crisis, it is imperative that we use that time in order to
address its root causes.”

Bilateral credit lines extended by EMU member states to the IMF to
help address the crisis “must have all the characteristics of a reserve
instrument,” Weidmann said. “In particular, the IMF must not become a
vehicle for monetary financing of government deficits.”

Even if the crisis has been one of advanced economies, the low
interest rates implemented in these countries in response can lead to
larger capital flows to emerging markets, he said. At the same time,
banks in trouble can limit cross-border investment, while an economic
slump in industrialized nations can hurt exports of EMEs, he observed.

Still, he said, if agreed measures are rigorously put into place,
“I am confident that, by following this course, we will eventually
contain the crisis and that the euro will remain a stable currency.”

–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com

[TOPICS: MGX$$$,MT$$$$,M$$EC,M$X$$$,M$$CR$,M$G$$$]