Feb. 1 (Bloomberg) -- European Central Bank council member Jens Weidmann said the fiscal treaty agreed by European leaders this week isn’t the foundation for a fiscal union.
“Obviously in the negotiations, as often in the past, things were watered down,” Weidmann, who is also head of the Bundesbank, said according to remarks prepared for a speech in Dusseldorf, Germany today. “It’s clear that the cornerstone for a real fiscal union hasn’t been laid here.”
The fiscal-discipline treaty completed in Brussels late Monday speeds sanctions on high-deficit states and requires countries to anchor balanced-budget rules in national law. The German-led deal is designed to prevent a repetition of the sovereign debt crisis that has seen Greece, Ireland and Portugal require external aid and has swollen the borrowing costs of Italy and Spain.
Weidmann said that without the ability of a central authority to intervene in budgetary policies, common debt instruments such as euro bonds are “unjustifiable.”
“The provisions for national budget rules still leave significant leeway and it won’t be policed at the European level just how far they are actually held to,” he said. “Most of the member states are seemingly not ready to give up their sovereignty in fiscal policy.”
ECB President Mario Draghi said earlier this week that the fiscal compact “will strengthen confidence in the euro area,” when calling it “the first step toward the fiscal union.”
Weidmann said the “key to solving the debt crisis” remains with governments. There’s a “good reason” why the monetary financing of states is banned, he said, calling it a redistribution of “solvency risks” within the region.
Germany’s economy, Europe’s largest, is “basically well positioned,” Weidmann said, with the biggest risk coming from a possible worsening of the debt crisis.
--Editors: Simone Meier, Patrick Henry
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