April 12, 2018 / 4:16 PM / 7 days ago

Bundesbank sceptical over bailout fund reform effort

FRANKFURT, April 12 (Reuters) - Bundesbank President Jens Weidmann expressed scepticism on Thursday over a proposal to reform the European Union bailout fund, the ESM, just hours after the European Central Bank said it supported the effort.

Weidmann, frequently mentioned as a candidate to replace ECB chief Mario Draghi next year, said the proposal would fail if it curtailed member states’ control over the European Stability Mechanism (ESM), which has a lending capacity of around 500 billion euros.

“If this step would undermine the member states’ existing right to have a say, it would have to be rejected because then liability and action would diverge – because it’s the member states that are providing the guarantees for the risks taken by the ESM,” Weidmann said in Berlin.

The ECB said earlier that it supports the ESM reform proposal even if further measures are still needed and despite its objection to renaming the agency the “European Monetary Fund”.

But many euro zone governments also oppose the change, fearing decreased influence over a reformed ESM.

Still, Weidmann said giving the ESM a stronger role in crisis prevention made sense. It could have a role in budget surveillance of the member states and could play a coordinating role in the orderly restructuring of sovereign debt.

In a potential race for Draghi’s job, Weidmann is likely to face criticism that he often sides with the minority on the rate-setting Governing Council, having opposed key stimulus measures that kick-started European growth. (Reporting by Balazs Koranyi Additional reporting by Michael Nienaber Editing by Hugh Lawson)

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