July 22, 2011 / 5:01 PM / 9 years ago

ECB's Weidmann laments move toward transfer union

FRANKFURT (Reuters) - The Greek aid package weakens incentives for euro zone countries to maintain solid finances and leads toward a fiscal transfer union, ECB policymaker Jens Weidmann said on Friday.

Euro zone leaders agreed on a 109 billion euro ($156 billion) package for debt-stricken Greece on Thursday and gave the bloc’s rescue fund, the EFSF, the power to buy government bonds from investors and provide lifelines to troubled euro zone banks and governments.

The European Central Bank relented on its opposition to Greek default and signaled it was willing to let this happen temporarily as long as it was strictly a one-off.

Weidmann, who also heads the German Bundesbank, said that while decisions taken were welcome in that they could pacify markets, they also resulted in countries which have maintained solid finances having to take risks on behalf of others.

“As a whole, the decisions could help to reduce the acute tensions in financial markets. But, as substantial additional risks were shifted to assisting countries and their taxpayers, the euro zone took a big step toward collectivization of risks,” Weidmann, who had previously warned against the EFSF buying bonds in the secondary market, said in a statement.

“This weakens the foundation for a currency union based on fiscal self-responsibility. In the future, it will get harder to maintain incentives for sound fiscal policies,” he added.

Weidmann also said Greece, as well as other countries, must act forcefully in consolidating their finances.

“In the consolidation of public finances in the whole euro zone and in hardening the framework of the currency union, there may not be any exceptions,” he said. (Reporting by Sakari Suoninen and Marc Jones; Editing by Ruth Pitchford)

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