Pressure for bigger ECB role in crisis must end: Weidmann

FRANKFURT Mon Nov 14, 2011 6:58am EST

FRANKFURT (Reuters) - Bundesbank President Jens Weidmann said on Monday international pressure for the European Central Bank to play a bigger role in tackling the euro zone debt crisis must end as it could undermine the ECB's hard-won credibility.

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 17-country bloc's central bank to take a bigger role in resolving the crisis.

Silvio Berlusconi also made a parting call as Italian prime minister on Sunday for the ECB to become a lender of last resort to prop up the euro.

Weidmann, who sits on the ECB's 23-member Governing Council, said such pressure must cease. The ECB could not be used to finance governments or prop up insolvent banks.

"Monetary policy cannot and must not solve solvency problems of states and banks, this has to be decided by national parliaments," he said in a speech at Euro Finance Week in Frankfurt.

"The participation of monetary policy for fiscal policy purposes must come to an end," he added.

"Should monetary policy further stretch its mandate to deliver price stability or even violate forbidden rules of fiscal financing, nothing less is at stake than its credibility, which it has worked hard to gain over decades, and in the face of opposition."

Weidmann led a small faction on the ECB Governing Council that opposed the reactivation in August of the bank's bond-buy program, a controversial tool that led his predecessor at the Bundesbank, Axel Weber, to quit earlier this year.

Another German ECB policymaker, Juergen Stark, is also resigning this year in what sources say is a protest at the plan, which many in Germany feel shifts the ECB's focus from its inflation-fighting mandate and toward fiscal policy.

Stark has called for the ECB to halt the bond program.

POLITICAL WILL

Despite opposition in Germany to ramping up the bond-buy plan, pressure for the bank to do exactly that grew last week when Italian benchmark bond yields shot past 7-percent -- the point at which Portugal and Ireland were forced seek bailouts.

"With every setback suffered by governments to solve the crisis, the pressure has risen on monetary policy regarding its role as the only potent actor," Weidmann said.

"This threatens to completely blur or even eliminate the boundaries between monetary and fiscal policy," he added.

Such pressure had recently been seen when leaders considered using the ECB to leverage the euro zone's rescue fund, the European Financial Stability Facility, he said.

Euro zone leaders eventually decided not to use the ECB to leverage the fund, but officials have yet to find a watertight way to boost it.

Uncertainty over how the bulked-up EFSF will be funded is playing out amid intense market pressure on Italy, where former European Commissioner Mario Monti began preparations on Monday to form a new technocrat government to restore market confidence in the country's battered public finances.

"Italy can master the current difficulties on its own," said Weidmann. "It is just a matter of political will," he said, adding that the country was not making the most of its economic potential.

(Writing by Marc Jones and Paul Carrel)

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