Bundesbank head: euro partly guilty for problems

The euro, as much as countries that have built up unsustainable public debts using it, is guilty for the eurozone’s current malaise, according to Axel Weber, outgoing head of Germany’s central bank.

Speaking to the Swiss Institute for Foreign Studies in Zurich yesterday, the Bundesbank president said introducing the single currency had made it easier for peripheral countries in the eurozone to obtain capital, and form deficits, from overseas.

This is because they did not face the FX risk of their own currency, as the risk of all the region’s countries sank to the level of the safest – effectively Germany.

Nations in deficit sometimes employed capital inflows inefficiently, investing in booming property markets, financing public deficits or excessive private consumption, he said.

This impaired their global competitiveness, and exports shrank and imports grew all to the benefit of the world’s countries in surplus.

The dynamic of the few to build on deficits has ultimately affected the whole eurozone, Weber said – but it is up to those few in trouble to fix their problem.
“Country-specific solutions are required,” he said.

Improving administrations, taxes, retirement systems, work and benefits systems is crucial, he said.

“It behoves deficit countries to grow national savings. With this will unavoidably come reductions in domestic consumption.”

Weber cited Greece, Ireland, Portugal and Spain as countries with persistent deficits, while Germany and the Netherlands enjoy permanent surplus.

Imbalances within the eurozone must be dismantled permanently to avert future damage to the monetary union, he said.

David Walker

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