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11 September 2013

Bundesbank/Weidmann: Debt haircut for Greece does not solve problems


In an interview with Leipziger Volkszeitung, Weidmann described the two challenges Europe is facing: crisis-hit countries must get their problems under control; and the architecture of monetary union needs extensive refurbishment.

We either move towards deeper European integration or countries retain national sovereignty?

That is a decision that policy-makers must make and the general public must support. At the very least, more integration would mean that the European level is given more extensive rights to intervene in the event of unsound public finances. If the individual countries reject this far-reaching loss of sovereignty and remain largely independent in fiscal and economic policy, then the consequences of any ill-judged decisions should not be communitised. In fact, the current Maastricht Treaty is built on that very principle.

Are the financially troubled euro area countries really showing a willingness to reform?

The situation differs greatly from country to country. The adjustment burdens that the populations of these countries have to bear are considerable. Yet this should not tempt us to look for shortcuts which do not exist. The path will be long and arduous, as the people in eastern Germany probably know better than anyone else.

There is speculation that Greece will need a new injection of capital. Does this come as a surprise to you?

It was possible to infer from the calculations for the last assistance programme that financing needs would arise again from 2015 onwards. Moreover, we knew that the programme was finely calculated. Thus, the need for additional funds has never been unlikely.

Essentially, what is being discussed is forgiveness of Greek debt to official-sector creditors, for it is they who now hold the bulk of Greek government debt. Debt forgiveness de facto means transfer payments from European to Greek taxpayers. Even if we did support such transfers, they would not make the structural problems in Greece go away. At the end of the day, only competitive economic structures and an efficient public administration can help achieve a solution. Apart from that, debt forgiveness for Greece could encourage other countries to call for similar treatment.

To grant assistance loans with conditions attached as a last resort, and as a means of tackling the causes of the crisis, is a correct approach in principle assuming that euro area financial stability would be at risk without them. However, the loans were intended to help Greece help itself; they should not entice the country to put off tackling the root causes.

Germany, like other countries, has taken on enormous liability risks. But without this assistance the crisis could have been even more severe, not just in the countries hit by the crisis. Moreover, it could have spread to the other countries of the monetary union. But these liability risks are acceptable only if the crisis countries stick to what was agreed and we do not creep by degrees towards a transfer union.

The ECB also took action in the form of government bond purchases. You do not approve of them?

That is right, I take a critical view of those purchases. They blur the boundary between monetary and fiscal policy, which potentially puts price stability at risk. Buying government bonds of crisis-hit countries redistributes liability risks between the taxpayers of the euro area countries. In my opinion, it should be for parliaments and governments to make such decisions, as is the case, for example, with the ESM rescue package.

I was never in doubt that promising investors to relieve them of their risks would calm the financial markets. But the end does not justify the means, not least because we also have to see the side-effects. I am concerned that announcements of this kind might give the impression that the problems can be solved without fundamental reforms. That is one of the supposed shortcuts I warned about.

Full interview



© Deutsche Bundesbank


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