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Joint European debt must not become a common thing – Bundesbank President

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A decision by European leaders to issue joint debt to finance coronavirus aid for weaker member states should remain an exemption and not serve as a blueprint for future budget challenges, Bundesbank President Jens Weidmann said on Sunday.

European Union leaders on Tuesday clinched an historic deal on a massive stimulus plan for their coronavirus-throttled economies following a fractious summit lasting almost five days.

The agreement paves the way for the European Commission, the EU’s executive, to raise up to 750 billions euros on capital markets on behalf of all 27 states, an unprecedented act of solidarity in almost seven decades of integration.

“It’s important that the EU has proven its capability to act in the crisis,” Weidmann told Funke media group in an interview, adding that showing solidarity also in financial terms was the right thing to do in the current crisis.

But Weidmann added the agreed debt mechanism should remain an exemption and that strict conditions had to be attached to the financial aid.

“Control mechanisms are needed to ensure that funds are used sensibly and efficiently,” Weidmann said.

“Generally, I think joint debt for extensive transfers is questionable. At the very least, the package should not serve as a springboard for large-scale EU debt for regular household financing,” he said.

The central bank chief also pointed to the current developments in the United States, an important trading partner for Germany.

“The U.S. loosened some of its measures early on and is now tightening them up again in some places. This stop-and-go is certainly difficult for the economy,” Weidmann said.

“In any case, this shows how important it is to stay vigilant, to closely monitor the infection process and to prevent a flare-up.”

Turning to Germany, Weidmann said Europe’s largest economy had passed the peak of the pandemic as well as the low point of the economic crisis. Retail sales were picking up again and production was also increasing.

“Overall, the data shows that the economy bottomed out in spring and is now gradually recovering,” Weidman said.

via Reuters

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