September 26, 2011 / 9:01 PM / 7 years ago

ECB's Weidmann argues against preemptive action

WASHINGTON (Reuters) - Preemptive action would reduce the pressure needed to get euro zone politicians to tackle the region’s debt crisis, European Central Bank Governing Council member Jens Weidmann said on Monday.

“With all our actions we set incentives for politicians. If I tell a politician, ‘hey, take our balance sheet to leverage your assets,’ I can be sure that there will be no further measures,” Weidmann said during a question-and-answer session at an event organized by the American Council on Germany.

“I don’t want to comment on the SMP (ECB bond buy program) but this also of course is one of the issues you have when you preemptively act.”

Weidmann, who heads Germany’s Bundesbank, also said he expected the German economy to record growth of 0.5 percent in the third quarter, the first time he has given a firm prediction about the euro zone’s biggest economy’s latest quarter.

It grew at 0.1 percent in the second quarter, after 1.3 percent growth in the first three months of the year.

There was also a fresh attack on politicians’ response to the debt crisis.

Weidmann urged leaders to take the necessary tough decisions rather than try to force the ECB beyond its responsibilities.

Perpetual talk of increasing the size of the taxpayer-funded euro zone bailout fund was also a damaging approach as was the idea of allowing the bailout fund to borrow directly from the ECB.

“A bazooka! (a massively beefed up bailout fund that could tap the ECB) I don’t think it is a recipe that works in Europe,” Weidmann, a former close aide of German Chancellor Angela Merkel, said.

“The market concern is not that it (bailout fund) is 1 trillion, 750 billion or 1.5 trillion or whatever, I think the market doubts there is political support or the capacity to deliver.”

The troubles were also putting public faith in the euro at risk, he warned.

“This is a very dangerous thing. It means you completely blur the responsibility between fiscal and monetary policy.”

“This might be appropriate in a setting where you have one taxpayer, one central bank and one fiscal agent, but in a situation like Europe where you have a few countries paying at the end and distributing to other countries, this is the best way to erode public support for the monetary union.”

(Editing by James Dalgleish)

This story was corrected throughout to say Weidmann referred to preemptive action

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