Bundesbank chief says ECB has done a lot to fight crisis, can’t solve it

Bundesbank chief says ECB has done a lot to fight crisis, can’t solve it

Filed 13 hours ago

Germany’s federal reserve Bundesbank President Jens Weidmann stands beside the door of a giant safe as he poses for a photograph at the money museum next to the Bundesbank headquarters during a photo shoot with Reuters in Frankfurt May 17, 2013. REUTERS/Kai Pfaffenbach

By Ingrid Melander

PARIS – Bundesbank chief Jens Weidmann said on Thursday it was not up to the European Central Bank to solve the euro zone crisis, resisting pressure from other ECB policymakers for the bank to widen its range of policy tools. Speaking in Paris, Weidmann declined to comment on U.S. Federal Reserve chairman Ben Bernanke’s remarks that the U.S. central bank may start to trim its bond purchases at one of its next policy meetings. Focusing on the situation in the euro zone he said: “Monetary policy, that is to say the Eurosystem (of euro zone central banks) has already done a lot to curtail the crisis.” “But monetary policy cannot solve the crisis, we are completely united on that in the ECB Governing Council,” Weidmann, a member of the policymaking body, told a conference.Weidmann made his comments after another ECB policymaker, Peter Praet, said the bank could try new policies if needed to battle deflation risks and that it was weighing up measures to encourage more lending in the euro zone.

“The origins of the crisis are structural in nature,” said Weidmann, an inflation hawk who wants to keep pressure on governments to reform and cut their deficits rather than risk the ECB overreaching in its policy response.

“Therefore, only structural measures can solve the crisis … The Eurosystem (of euro zone central banks) has bought European governments time to solve the crisis.”

Weidmann said all central banks had reacted to an “extraordinary crisis” with “extraordinary policy measures”, but declined to comment on Bernanke’s remarks.

Bernanke sent stock markets tumbling after he said on Wednesday that the U.S. central bank may start to trim its bond purchases at one of its next policy meetings.

Asked to comment about Japan’s new monetary policy and its pledge to increase base money, Weidmann said: “I wish the Japanese good luck in their experiments, they certainly have a challenge of debt sustainability.”

Weidmann, an inflation hawk, warned euro zone states against going for easy solutions and depending too much on monetary policy rather than pursuing structural reforms.

Euro zone states must ensure they have solid public finances in order for the European Central Bank to be able to do its job of ensuring price stability, he said.

The ECB is concerned that banks, worried about taking on risk, are not lending to smaller businesses in the euro zone periphery and has set up a taskforce with the European Investment Bank to address the issue.

But Weidmann warned that the ECB could only do so much to help SMEs, saying it could not be a policy goal to have equal interest rates for businesses across the bloc.

Turning to the French economic situation, Weidmann said he acknowledged that France had reduced its structural deficit by around one percentage point per year in the last three years.

“But looking to the remaining fiscal policy challenges, I think it is necessary to adhere to the existing rules on deficit reduction,” he added.

The European Commission has proposed that EU states grant France two more years to bring its deficit below a ceiling of 3 percent of output because of the country’s poor economic outlook within a recession-hit euro zone.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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