June 15, 2012 / 5:53 AM / in 6 years

ECB'S Weidmann says banking union needed to break govt-bank ties

MILAN (Reuters) - The ties between national governments and their banks should be broken with a banking union, European Central Bank policymaker Jens Weidmann said in an interview in Italian newspaper Corriere della Sera on Friday.

“It is not however a question that can be resolved quickly since it requires quite a lot of legal changes similar to those of a fiscal union,” Weidmann said.

Weidmann, who is also chairman of Germany’s Bundesbank, said the 100 billion euro package agreed to save Spain’s banking system was enough.

“For what we know today the amount discussed seems to contain a sufficient margin of safety,” he said.

Weidmann said Greece not meeting its obligations would lead to funding being interrupted.

“And this can have repercussions on the possibility of staying in the euro,” he said.

Asked about reforms being carried out by Italy’s prime minister Mario Monti, Weidmann said Monti had undertaken important reform measures.

“Now it’s a question of implementing them and it’s a process that takes time before coming to fruition,” he said. “Italy is on the right path.”

Asked if the ECB could cut interest rates below 1 percent, Weidmann said the bank would not commit itself ahead of time.

He said financial market instability stemmed from political uncertainty on carrying out reform programs in Greece and on the future of monetary union in general.

“Not everything can be resolved with a rates cut,” he said.

Reporting by Stephen Jewkes; Editing by Lisa Shumaker

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