German finance minister warns eurozone must still reform despite ECB bond plan

| September 10, 2012 | 0 Comments

The German finance minister Wolfgang Schaeuble has warned eurozone countries
must press ahead with cutting their deficits and reforming economies despite
the European Central Bank revealing ground-breaking plans to buy bonds.

Mr Schaeuble said it would be a “serious mistake” if the ECB’s plans were
interpreted as a sign that countries can relax their efforts to strengthen
their balance sheets.

Germany’s central bank, the Bundesbank, has expressed its opposition to the
ECB proposals and the comments from Mr Schaeuble are a further example of
the unease within the country at the plans.

Through buying government bonds, the ECB will be able to help lower the
borrowing costs of countries struggling to manage their debts, such as Spain
and Italy.

However, Mr Schaeuble told Germany’s Buld am Sonntag newspaper: “We
will only overcome the euro’s crisis of confidence if we do not let up on

“It would be a serious mistake if the ECB decision were misinterpreted in
the sense that we could now let up on our efforts. The opposite is the case.”

The finance minister also said the ECB must not overstep its remit and be seen
to finance eurozone nations.

“The ECB has in the past always kept to its mandate and I assume it will
do so in the future, too,” he said. “One thing is clear: monetary
policy must not serve to finance states. That line must not be crossed.”

His comments come after leading economists and statesmen warned at a gathering
of the European policy elites in Italy that the ECB’s plan for mass
purchases of bonds is fraught with political risk and may soon be
overwhelmed by nationalist anger in the crisis states.

“The ECB move is helpful but is not a game-changer. The eurozone is still
in crisis,” said Nouriel Roubini, head of Roubini Global Economics.

“Unless Europe stops the recession and offers people in the peripheral
countries some light at the end of the tunnel – not in five years but within
12 months – the political backlash will be overwhleming, with strikes, riots
and weak governments collapsing.”

The Italian finance minister, Vittorio Grilli, also speaking at the Ambrosetti
forum at Lake Como, said his country has no plans to apply for the bond
purchase program. Mr Grilli said Italy “at this moment absolutely does not
need” to request help.

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