Bundesbank rejects calls to fund euro zone rescue

FRANKFURT (Reuters) - Bundesbank President Jens Weidmann pushed back on Tuesday against growing pressure from world leaders for euro zone central banks to play a greater role in supporting states mired in the bloc's debt crisis.

British Prime Minister David Cameron, U.S. President Barack Obama and Russian Prime Minister Vladimir Putin are among those who have recently called for the European Central Bank to play a strong role in dealing with the European debt crisis.

A proposal, examined by the ECB, to use national gold and currency reserves or IMF special drawing rights to boost the bailout fund caused tension between Weidmann and German Finance Minister Wolfgang Schaeuble, and between Weidmann and the ECB, at last week's G20 summit, German sources said. [ID:nL6E7M71R0]

German Chancellor Angela Merkel eventually told G20 leaders the independence of the German central bank meant she could not back the proposal, a move Weidmann seemed to have appreciated.

"I am glad that also the German government echoed our resistance to the use of German currency or gold reserves in funding financial assistance to other EMU members," said Weidmann, who heads the German Bundesbank.

Weidmann has already opposed the ECB's sovereign bond purchase program, saying it threatened the central bank's independence, blurring the lines between monetary and fiscal policy.

His predecessor at the Bundesbank, Axel Weber, quit over the program and another heavyweight German ECB policymaker, Juergen Stark, is resigning this year in what sources say is a protest against the plan.

The prohibition of monetary financing was "one of the most important achievements in central banking", Weidmann said, referring to Germany's experience with hyperinflation after World War One.

Financing public debt created "substantial risk" and undermined incentives for governments to implement far-reaching reforms to get budgets under control, Weidmann said.

"It undermines the incentives for sound public finances, creates appetite for ever more of that sweet poison and harms the credibility of the central bank in its quest for price stability," Weidmann said.

Governments should strengthen their budgets, he said, advising Germany not to "weaken its fiscal stance by spending any revenue windfalls, but rather to continue the timely consolidation of the budgets at all levels of government".

With regards to Greece, Weidmann said financial aid "will be halted if Greece decides against the agreed adjustment process".

(Writing by Eva Kuehnen; Editing by John Stonestreet, Ron Askew)