The head of Germany’s central bank has accused Brussels of giving up on enforcing the eurozone’s economic rules, in a powerful attack on the European Commission.
Jens Weidmann, president of the Bundesbank, said the only way of disciplining high-spending governments in the single currency area was now through the markets. “My perception is that the European Commission has basically given up on enforcing the rules of the Stability and Growth Pact,” Mr Weidmann said on Friday.
The Stability and Growth Pact sets limits on countries’ budget deficits and debt burdens and is enshrined in EU law. While its rules have consistently been breached by member states, European officials have rarely spoken out directly about the commission’s reticence to impose punishments for the breaches.
Brussels in July dropped threats to fine Spain and Portugal over breaches, saying both member states had already gone through significant amounts of fiscal consolidation. The German finance ministry in Berlin took a more relaxed view than the central bank, with Wolfgang Schäuble calling the commission to urge leniency. Germany has also previously been in breach of the conditions of the pact.
Mr Weidmann’s displeasure with the commission over the pact is longstanding, and he has previously called for the power of enforcement to be switched to a separate, more independent agency.
The Bundesbank views the commission’s neglect in enforcing the pact as problematic for the European Central Bank and other banks in the region, which have become the largest creditors of governments off the back of their bond buying under quantitative easing.
“Eventually, there might be increasing pressure on the Eurosystem [of central banks] to make high debt sustainable through low interest rates,” Mr Weidmann said.
The ECB has bought €1.4tn of government bonds so far as part of its quantitative easing programme.
Mr Weidmann also blamed the programme and other measures undertaken by the bank, many of which he voted against, for putting at risk the ECB’s independence to set monetary policy as it sees fit.
“These new instruments, and the prospect of a long period of ultra-low interest rates, gave birth to a situation in which monetary policy became the subject of intense political debate,” he said. “The intensity reached a level that, at the end of the day, could even have a bearing on the very independence of central banks.”
A Commission spokeswoman said that the institution “is committed to applying the Stability and Growth Pact, including the flexibility embedded in the rules”.
Brussels this week warned that some euro area countries’ budget plans for 2017 “are at risk of non-compliance” with the bloc’s fiscal rules and that governments “need to take the necessary measures” to address this, she noted.
Jean-Claude Juncker, the president of the commission, said in September that the EU’s system of budget rules should not be allowed to decay into “a flexibility pact, but must be applied with intelligent flexibility, so that it does not hinder growth”.
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