German bank chief wants 'real fiscal union' in eurozone

1st September 2011, Comments 0 comments

The head of Germany's powerful central bank called Thursday for greater co-ordination of fiscal policies in the eurozone as a response to the debt crisis, which he termed its "most severe ever test."

Speaking in Hanover in northern Germany, Jens Waidmann said that any solution to the crisis that has crippled debt-laden states on the periphery of the 17-country zone must tackle the problem at its roots.

"One option is to take the step towards a real fiscal union and reduce the power of national fiscal policies," Waidmann said, according to the text of his speech published by the Bundesbank.

If Europe's politicians are not able or willing to take this step, then disciplinary measures to punish fiscally imprudent states must be tightened, Waidmann insisted.

Waidmann, who as president of the Bundesbank sits on the Governing Council of the European Central Bank, reiterated his concern that the ECB's bond-buying programme overstepped what central banks should be doing to combat the crisis.

"The borders between the responsibilities of monetary policy on the one hand and fiscal policy on the other are slowly fading away. In the long term, this weighs on the confidence central banks enjoy," he said.

The ECB intervened heavily on the bond markets last month, helping to ease the unsustainably high borrowing costs Italy and Spain were having to pay to raise fresh funds.

ECB President Jean-Claude Trichet has frequently called on EU governments to implement measures agreed at an emergency eurozone summit in July to resolve the bloc's debt crisis.

One of the measures is to establish a new eurozone rescue fund that will take over from the ECB the responsibility of intervening in the secondary bond market to take the pressure off debt-wracked countries.

© 2011 AFP

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