2/12/2019, 10:14 AM (Source: TeleTrader)
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Weidmann: Central bank is 'crisis response unit'

Bundesbank President Jens Weidmann said on Tuesday that the Eurozone has "a strong leg" – the mandate and the independence of the Eurosystem, and a weak one, "the lack of a genuine economic union" in the fiscal and economic policy framework. In any case, he told the audience at an event in Pretoria, South Africa, a central bank can contribute with price stability but it doesn't have the power over the cycle of growth and unemployment. The member of the Governing Council of the European Central Bank stressed the institution was designated to be the "crisis response unit" when the financial crisis started a decade ago parallel to fiscal emergency measures.

"A narrow interpretation of the mandate" is essential for the people's trust as unelected officials can't use independence for other purposes, he asserted. In Weidmann's view, independence allows acting quickly, "which saves governments from organizing parliamentary majorities for unpopular decisions."

Turning to the expired program of purchasing government bonds, the rate-setter said the tool took the Eurosystem "to the outer limits of its mandate" but that the last round was conducted with less risk sharing. As the ECB and national central banks are major creditors to governments, it may challenge independence, he stated.

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