Bundesbank chief cautious on EU deal

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Bundesbank president and European Central Bank governing council member Jens Weidmann welcomed Thursday key aspects of the deal to solve the EU's debt crisis but appeared more cautious on others.

"The crisis decisions should ensure that the risks for monetary policy can be reduced markedly and the separation between monetary and fiscal policy is again more sharply delineated," Weidmann told a financial conference in Munich.

Nevertheless, a decision to leverage the EU's bailout fund carried risks, the German central bank chief warned.

"It is tied to higher risks of losses and to increased socialisation (sharing) of risks," Weidmann said.

"The way they are constructed, the leveraging instruments are not too different from those which were partly responsible for creating the crisis, because they concealed risks," he argued.

After unprecedented marathon talks, involving two EU and two eurozone summits in just four days, Europe's leaders in the small hours Thursday agreed a new rescue of Greece, a trillion-euro bailout fund, and cut a deal squeezing banks to share the burden of losses on Greek debt.

The firepower of the European Financial Stability Facility (EFSF) is to be leveraged up between four- and five-fold.

Weidmann said governments were responsible for the eurozone's present woes and only they could solve it.

Among the positive aspects of the deal, the Bundesbank chief pointed out that the ECB would not be used to leverage the EFSF.

"This would have amounted to turning on the money presses to finance the state, which I not only believe would be economically a mistake, but is actually expressly banned in the EU treaty," he said.

Under the EU deal, private banks and insurers will write off 50 percent of their holdings of Greek government debt.

But that should not be seen as an easy way out for other profligate countries and Greece must not relax its efforts to get its finances in order, Weidmann insisted.

"The decisions taken ... can only be judged in as far as they actually help solve the problems," Weidmann cautioned.

© 2011 AFP

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