Bundesbank head: ECB can't be lender of last resort

22nd November 2011, Comments 0 comments

The European Central Bank should not act as lender of last resort for struggling eurozone countries, the head of Germany's central bank said on Tuesday, warning it could destroy its independence.

Speaking at a conference in Berlin, Jens Weidmann also said he was confident that both Spain and Italy could manage their current difficulties without recourse to outside aid.

"There are compelling reasons why we should stick to the independence of the central bank, especially in difficult times," Weidmann said according to the text of a speech provided by his office.

The ECB "does not have the mandate -- it is even forbidden -- to finance the budgets of member states," added the central banker.

"If it took on a lender of last resort role for highly indebted member states, it would overshoot its mandate and call into question its independence," said Weidmann.

"There would be significant stability risks attached to this path."

Pressure on the ECB to step in and backstop the debts of certain member states has increased amid a crippling economic crisis that threatens to tip the 17-nation zone into recession.

But the ECB has steadfastly refused to go further than their current programme -- already controversial of buying the bonds of distressed countries.

Two top German central bankers, former Bundesbank chief Axel Weber and ECB chief economist Juergen Stark, have already stepped down in protest at the bond-buying programme, saying it compromised the ECB's cherished independence.

Turning to the domestic economy, Weidmann said: "I currently do not see a recession in Germany."

"However, all forecasts have an unusually high degree of uncertainty attached to them. We will only be spared a recession if the current crisis of confidence do not escalate further," he cautioned.

He said Germany had a responsibility, as Europe's top economy, "to act as an anchor of stability in the European monetary union."

© 2011 AFP

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