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Thursday, April 19, 2012 7:29 PM


"Not ECB's Job to Tackle Spain's Problems" Says German Central Bank President; Sparks Will Fly as France-Germany Rift Widens


Echoing sentiment that should be widely-held but unfortunately is not German central bank president  Jens Weidmann says Not ECB's Job to Tackle Spain's Problems.

Spain should take a rise in its bond yields as a spur to tackle the root causes of its debt woes, not look to the European Central Bank to help by buying its bonds, European Central Bank policymaker Jens Weidmann told Reuters.

In a wide-ranging interview, Weidmann, who turns 44 on Friday, also said he saw no reason to discuss a third LTRO, the funding instrument with which the ECB has pumped over 1 trillion euros into financial markets since late last year.

"I don't think you will find any colleague (on the ECB Council) who is of the view that the Eurosystem (of euro zone central banks) is there to ensure a particular interest rate level for a particular country."

Some investors are betting that the rise in Spanish borrowing costs will force the ECB to dust off its bond-buying programme, but Weidmann suggested countries should not be looking to the central bank for such help.

"It is not our job to provide financial aid in order to extend necessary adjustments over time," Weidmann said. "That is exactly what the bailout fund is for."

SARKOZY REBUFF

French President Nicolas Sarkozy, who is currently campaigning for re-election, demanded earlier this week that the ECB be given a bigger role in driving growth.

Weidmann responded to Sarkozy's call by saying the best contribution the ECB could make to growth was to deliver stable prices, in line with the bank's existing mandate.

"It fills me with concern that a softening of the mandate is being discussed," Weidmann added. "A fundamental discussion about changing the mandate can definitely have effects on inflation expectations."
Sparks Will Fly as France-Germany Rift Widens

The rift between Germany and France widens. That rift will widen further when French president Nicolas Sarkozy is booted for socialist François Hollande in the May presidential election.

Hollande leads Sarkozy in round two polls by double digits, and Hollande has promised to rework the tenuous "Merkozy" treaty not yet ratified in France.

Specifically, Hollande outlined plans to raise taxes from the country’s banks, big companies and higher earners to close the country’s budget deficit. Hollande's manifesto includes a call to renegotiate the new eurozone "fiscal compact" including for the creation of eurobonds to overcome the sovereign debt crisis.

Think that's going to fly?

I don't. I think sparks are going to fly.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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