* Calls for governments to press ahead with reforms
* Wants abolition of implicit guarantees for banks and
* Says tighter fiscal rules needed
By Ingrid Melander and Michel Rose
AIX-EN-PROVENCE, France, July 7 The European
Central Bank cannot solve the euro zone crisis, Bundesbank chief
Jens Weidmann told economists on Sunday, pressing the bloc's
governments to get their economies in shape and tighten their
Weidmann addressed an economists' conference in
Aix-en-Provence, southern France, only three days after the ECB
broke with precedent by declaring that it intended to keep
interest rates at record lows for an extended period and may yet
"Monetary policy has already done a lot to absorb the
economic consequences of the crisis, but it cannot solve the
crisis," Weidmann said in his speech.
"This is the consensus of the Governing Council. The crisis
has laid bare structural shortcomings. As such, they require
Weidmann, widely recognised to be the most hawkish member of
the ECB's 23-man Governing Council, does not want the bank to
intervene too strongly in tackling the bloc's economic crisis,
thereby allowing governments to soft-pedal reforms.
He spoke a day after fellow ECB policymakers Christian Noyer
and Benoit Coeure said the bank's decision to abandon its
customary insistence that it never precommits on policy was a
change in communication but meant no change from its strategy,
which is based on monitoring inflation, real economy and
"The euro zone is on the mend, it must be at peace,
protected, be allowed to heal," Coeure told the same conference
on Sunday to explain the ECB's decision to issue such forward
guidance, while urging governments to tackle structural
The EU's top economic official, Olli Rehn, welcomed the
ECB's move, saying the step - taken in response to turbulence
caused by the U.S. Federal Reserve's plan to slow monetary
stimulus - was needed to preserve recovery in Europe.
"The United States and Europe are at different points of the
economic cycle. While the U.S. has a more restrictive approach,
Europe needs to continue with a more accommodative policy," the
EU monetary affairs commissioner said.
While he does not see sufficient support in the euro zone
for governments to give up sovereignty on fiscal matters to
forge a fiscal union to prevent such crises in the future,
Weidmann pressed them to stiffen Europe's fiscal rules.
"To fully unleash the common currency's potential, efforts
are needed on two fronts: structural reforms as well as the
abolition of implicit guarantees for banks and sovereigns
(government bonds)," Weidmann said.
"In addition to stronger rules, we need to make sure that in
a system of national control and national responsibility,
sovereign default is possible without bringing down the
financial system. Only then will we really do away with the
implicit guarantee for sovereigns."
The Bundesbank chief also called for euro zone governments
to sever what he describes as the "excessively close links"
between banks and sovereign governments, saying that European
banks hold too many of their own governments' bonds.
"This is because banks do not have to hold any capital
against their government debt, as the risk-weight assigned to
sovereign bonds is zero.
To counteract excessive investment in sovereign bonds,
Weidmann believes that the capital rules need to be changed to
take account of risk and exposure levels.
"Only then will banks be able to cope with the repercussions
of sovereign default."