The head of Germany’s central bank has taken aim at plans for creating new eurozone funds to help crisis-hit countries, urging governments to instead make greater efforts to put their finances in order.
In a significant intervention in Europe’s political debate over reforming the currency bloc, Jens Weidmann said that the eurozone could create “dubious incentives” if it introduced “a far greater degree of fiscal risk sharing” in a currency zone where national governments remained responsible for key economic policy decisions.
“Ceding a significant portion of their sovereignty to Brussels is precisely what the euro area member states are not prepared to do,” the Bundesbank president said at an event in the Belgian capital. “It seems to me that it’s already hard enough at times to ensure that the [European] Commission’s existing powers are enforced and respected.”
Mr Weidmann, who is seen as a leading candidate to become the next president of the ECB, also insisted that other big integration steps, such as the creation of a common bank-deposit guarantee scheme, could only happen once countries cleared up legacy problems, such as stockpiles of non-performing loans in their banks.
The comments underline German scepticism about the push by Emmanuel Macron, France’s president, for eurozone integration to take a leap forward, with an emphasis on making sure the bloc has the financial firepower at its disposal to drive economic convergence and weather crises.
Mr Macron has suggested that the bloc should have a central “fiscal capacity” equivalent to several percentage points of euro area GDP.
Mr Weidmann said that Mr Macron’s ideas had provided an “important impetus for the European debate” even if they “have been greeted with a mixture of goodwill and scepticism in Germany.”
The remarks also highlight differences between the mainstream ECB view on eurozone reform and those of policy hawks from national central banks.
His vision is markedly more cautious than the stance taken by current ECB president Mario Draghi, who last month called explicitly for the eurozone to equip itself with “an additional fiscal instrument to maintain convergence during large shocks, without having to overburden monetary policy”.
Mr Draghi said its aim would be to provide “an extra layer of stabilisation, thereby reinforcing confidence in national policies”.
Questions have been raised about Mr Weidmann’s suitability for the top job in European finance due to his outsider role on the ECB’s governing council.
Mr Weidmann said that reforms introduced during the financial crisis, such as the creation of the eurozone’s sovereign bailout fund, the ESM, had been big steps forward but that they had “been insufficient to put the euro area on as sound a footing as we would all like”, with last week’s financial market turbulence in Italy serving as a “case in point.”
But he emphasised that much of the responsibility for stability lay in national hands, with governments needing to manage their budgets responsibly. He also strongly backed the development of a Capital Markets Union to boost the role of the private sector in cushioning economic shocks.
“I am concerned by the fact that enthusiasm for consolidation in the euro area seems to have waned,” he said. “It seems the reformed [EU] fiscal rules are having just as weak an impact as the old rules.”
Mr Weidmann’s comments came as EU governments wait to see what impact the new Italian government will have on reform debate and what kind of challenge it will pose to the currency bloc’s fiscal rules.
Giuseppe Conte, the country’s new prime minister, set out an agenda on Tuesday of tax cuts and a universal basic income that economists fear could cost the country more than €100bn per year.
Without naming Italy, Mr Weidmann said that it would be “tragic” if reforms made by European governments in recent years “were to be rolled back or consolidation gains squandered”.
Get alerts on Eurozone reform when a new story is published