* Calls for governments to press ahead with reforms
* Wants abolition of implicit guarantees for banks and
* Says tighter fiscal rules needed
AIX-EN-PROVENCE, France, July 7 The European
Central Bank cannot solve the euro zone crisis, Bundesbank chief
Jens Weidmann will tell economists on Sunday, pressing the
bloc's governments to get their economies in shape and tighten
their fiscal rules.
Weidmann is addressing an economists' conference in
Aix-en-Provence, southern France, only three days after the ECB
broke with precedent by declaring that it intends to keep
interest rates at record lows for an extended period and may yet
cut further in response to turbulence caused by the U.S. Federal
Reserve's plan to slow monetary stimulus.
"Monetary policy has already done a lot to absorb the
economic consequences of the crisis, but it cannot solve the
crisis," Weidmann is due to say in his speech, which was
released to the media in advance.
"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.
"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)," he will say.
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, Weidmann will press them to stiffen
Europe's fiscal rules.
"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 will also call 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."