SPIEGEL Interview with Bundesbank President Jens Weidmann 'Greece Must Live Up to Its Commitments'


Part 2: 'There Is No Stable Middle Ground'

SPIEGEL: Would the risks of a Greek insolvency be manageable?

Weidmann: As I said, I don't want to get involved in speculation. But the European Financial Stability Fund (EFSF) will be expanded, partly to reduce the risks of problems spreading among individual countries.

SPIEGEL: Chancellor Angela Merkel has said that if the euro fails, Europe will fail. If that's true, then the euro must be defended at all costs.

Weidmann: If lawmakers decide to leverage the liability exclusion, they will have to create the necessary stable regulatory framework through stronger political integration, that is, a fiscal union. This would be a possibility…

SPIEGEL: …in the form of a United States of Europe, for example.

Weidmann: Such catchphrases need to be filled with content first. There are different forms of centralization, depending on how much leeway is to be left to the individual countries. In any case, rights must be delegated from the national to the European level.

SPIEGEL: In saying that, you are arguing for a completely new contractual basis of the monetary union.

Weidmann: No. All I'm saying is that lawmakers must decide between two models: a model with autonomous members, who are not liable for others and are disciplined by the market, and a model with deeper political integration. There is no stable middle ground. I think it's a dangerous approach to bring about a communization of liabilities among independent national fiscal policymakers, in the hope of achieving stronger political integration, without real intervention rights and sanctions.

SPIEGEL: That would seem to be the approach being taken now.

Weidmann: Certainly there is a danger that steps are taken down this path because it appears to be the more comfortable one.

SPIEGEL: Are your alternatives truly realistic? As the example of Greece shows, a return to self-reliance and sanctions through interest rates is not an option. And stronger political integration requires a new contractual basis complete with lengthy parliamentary processes, and possibly even constitutional amendments and referendums.

Weidmann: I think both approaches are feasible in principle, which doesn't mean that they're easy. The second option does indeed require time-consuming changes to the European treaties and national constitutions. It's important to take these steps in the right order and not to introduce the common liability part now, which might be more convenient for some, just because political integration is expected to occur at some point in the future. But I also feel that it would be promising, contrary to many prophecies of doom, to pursue a path returning to the origins of the real framework. It has to be strengthened, however.

SPIEGEL: That means returning to Maastricht, even though the model has just failed.

Weidmann: Not because the framework was wrong, but because the rules were violated and bent. Those who violate the rules must be sanctioned, and it has to happen automatically. It is not acceptable for sinners to be passing judgment on sinners. And the markets' disciplining function cannot be disabled.

SPIEGEL: What you refer to as disciplining is what many others see as an attack by speculators. Politicians feel that they are being driven by the markets. Is that without good reason?

Weidmann: Of course markets sometimes exaggerate. But fundamental aberrations are ultimately behind the loss of confidence in the public finances of the countries in question. The question is also whether we have a better means of applying discipline at our disposal than the markets.

SPIEGEL: Has your view of politics, the euro and the monetary union changed since you changed jobs?

Weidmann: When I was working in Berlin, I was always in contact with the Bundesbank, and my views were not far removed from the positions of the institution from which I emerged. Now I have new responsibilities with a clear legal mandate, which is to secure monetary stability. And that's what I support in the ECB Council and in public.

SPIEGEL: But in the past you were an advisor to an administration that now perceives you as a troublemaker when you don't play along in the ECB Council.

Weidmann: I don't see myself as a troublemaker, but I do take my responsibilities seriously -- and that's obvious. Whether or not Berlin likes this cannot be the criterion by which I judge myself.

SPIEGEL: Mr. Weidmann, we thank you for this interview.

Interview conducted by Michael Sauga, Armin Mahler and Anne Seith. Translated from the German by Christopher Sultan.

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