Bloomberg News

Ex-Bundesbank’s Weber Warns Debt Challenges Range Beyond Europe

October 12, 2011

Oct. 12 (Bloomberg) -- Axel Weber, the former president of Germany’s central bank, said heavily indebted countries outside Europe that run deficits are in danger of facing surging borrowing costs.

“No high-debt deficit country should feel safe,” Weber, 54, said today at Princeton University in New Jersey. “Don’t rest assured, and look over the Atlantic and say it’s a European problem. It’s a global problem.”

Countries with high debt levels and annual budget shortfalls including the U.S. should not have a “wrong sense of security” about the ability to roll over bonds as they come due, said Weber, who in February unexpectedly announced he would resign from the Bundesbank and as a European Central Bank policy maker.

“The bond markets are feeble animals -- they may just, at some point, turn on you,” he said in a lecture to a crowd of about 150 in an auditorium at Princeton University’s Woodrow Wilson School of Public and International Affairs.

In Europe, policy makers are trapped by shorter-maturity bonds that need to be reissued as investor appetite for the region’s debt drops, Weber said.

“The amount they need to roll, like an avalanche or a snowball you run down the hill, is becoming larger as the market conditions deteriorate,” he said. Policy makers should work to restructure Greek debt and prepare to recapitalize the region’s banks, he said.

Lack of Acceptance

Weber said in February that a lack of “acceptance” among euro-area leaders for his views on monetary policy caused him to give up on becoming the next chief of the ECB. Mario Draghi, head of Italy’s central bank, will succeed Jean-Claude Trichet as ECB president on Nov. 1.

Weber is scheduled to become chairman of UBS AG, Switzerland’s largest bank. He is currently a visiting professor of economics at the University of Chicago Booth School of Business.

European Commission President Jose Barroso today called for a reinforcement of crisis-hit banks, the payout of a sixth loan to Greece and a faster start for a permanent rescue fund to master Europe’s debt woes.

An Oct. 23 summit of euro leaders looms as a deadline for a breakthrough in combating the crisis, which has driven Greece toward default, rattled world markets and dented confidence in the survival of the 17-nation group that shares the currency.

--Editors: Kevin Costelloe, Chris Anstey

To contact the reporter on this story: Charles Mead in Princeton via cmead11@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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