The debt burden is less of an issue than the question of whether Greece is capable of achieving a sustainable fiscal surplus or of implementing the structural reforms necessary for growth...President Weidmann Bundesbank

Bundesbank President Weidmann stresses central bank independence

Bundesbank President Jens Weidmann has stressed the independence of the European Central Bank (ECB) and its monetary policy. "It’s not unusual for politicians to have opinions on monetary policy, but we are independent," Weidmann told the Financial Times. 

The Bundesbank’s president believes that the debate does not focus enough on the macroeconomic consequences of the current monetary policy. He noted:"People are not just savers: they’re also employees, taxpayers, and debtors, as such benefiting from the low level of interest rates".

Criticism of the Eurosystem’s ultra-loose monetary policy had been mounting in Germany in the past few days, with some calling on the Federal Government to put more pressure on the ECB.

The Bundesbank’s president noted that "the ECB has to deliver on its price stability mandate and thus an expansionary monetary policy stance is appropriate at this juncture regardless of different views about specific measures".

However, Weidmann thought that the ECB Governing Council’s latest measures should have been less aggressive. In this context, he reiterated his criticism of large-scale bond buying by Eurosystem central banks as blurring the boundaries between monetary and fiscal policy. However, he admitted that "the new asset purchase programme is less problematic than others before it" because there was less risk of communitising national fiscal risks: "each national central bank in the euro area buys the sovereign debt of its own country at its own risk". At the same time, he regarded a narrow interpretation of the monetary policy mandate as important for preserving the Eurosystem’s independence – as this was ultimately the decisive factor in ensuring price stability.

Seeking joint solutions

While talking to the FT’s reporters, he also spoke about the consequences of the United Kingdom’s possible exit from the European Union ("Brexit"). He said that the debate ahead of Britain’s referendum in June 2016 had added to "the mood of uncertainty" within the bloc and could delay business investment. "The uncertainty adds more weight to the option of shelving plans for a later date," Weidmann noted. "It could also lead more people to ignore the very fundamental insight that, in a globalised world, the answer to the challenges is not more fragmentation." "That doesn’t mean you have to centralise everything," Weidmann added. "But in a union you have to seek joint solutions and ensure the liability principle."

He said that the outcome of any post-Brexit negotiations between the European Union and the United Kingdom would be difficult to judge. Weidmann stressed, however, that it would "not be a very smart move" for the EU to punish a departing UK by erecting barriers to trade.

Implement programme conditionality

Weidmann took a sceptical tone concerning the debate on whether to haircut Greece’s debt: "The debt burden is less of an issue than the question of whether Greece is capable of achieving a sustainable fiscal surplus or of implementing the structural reforms necessary for growth." He noted that "as long as the programme conditionality is not adhered to, debt relief will be of limited use: we would just end up in the same place in a couple of years’ time".

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