ECB can't solve euro zone crisis alone: Weidmann

PARIS Thu May 23, 2013 4:35pm EDT

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

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.

Credit: Reuters/Kai Pfaffenbach

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PARIS (Reuters) - 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.

(Writing by Paul Carrell in Frankfurt; Editing by Jon Hemming)

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