FRANKFURT (Reuters) - It is too soon for financial risk to be shared more broadly across the euro zone, Germany’s European Central Bank representative said on Thursday, a day after its head made the case for a deeper union.
Germany has long resisted calls for more risk-sharing, and Jens Weidmann said high government debt and piles of soured bank credit were created under national responsibility so should not be pushed onto a community which had had no chance to mitigate them.
On Wednesday, ECB President Mario Draghi argued that the bloc needed a new fiscal instrument and more integrated risk-sharing between member states, as this would boost confidence and help avert crises.
Weidmann, the head of the Bundesbank, said risk that arose under national sovereignty “should not be mutualised” just as “private individuals can’t take out insurance for damage that has already occurred.”
In a speech in the German town of Freiburg, he added those legacy problems first had to be reduced, noting that bankruptcy law was still a national responsibility.
Weidmann said Germany could support the creation of an EU budget, an idea discussed on the political level, but this should not increase taxes and it should not be financed from EU-level debt issuance.
“Beyond the banking union, however, the willingness of the euro area member states to yield substantial sovereignty rights to Brussels, such as allowing a limitation in national budgetary autonomy, seems rather limited,” Weidmann said. “Therefore, it would also be premature to mutualise liability and share risks.”
Reporting by Balazs Koranyi; editing by John Stonestreet