Bloomberg News

Bundesbank’s Dombret Says Aid to Spain Doesn’t Solve Euro Crisis

June 12, 2012

Bundesbank board member Andreas Dombret comments on monetary policy, the sovereign debt crisis and the recapitalization of Spanish banks.

He made the remarks in an interview in London yesterday.

On the Spanish bailout:

“The developments over the weekend are welcome and should help to assure investors. We should soon have data for the bank recapitalization need.”

“It’s always better to take the big bath rather than a shower and with this I mean it is important to get ahead of the curve.”

“One has to distinguish between insolvency of the government or the need for bank recapitalization - and the solvency of the Spanish government is not in doubt. It is part of the Spanish banking system that is in urgent need of recapitalization.”

“The recapitalization of Spanish banks doesn’t mean that the fundamental problems of the sovereign debt crisis in the euro area are solved. This is about buying time. It is unclear whether we are heading for a deeper fiscal integration in the euro area. That is up to the leaders to decide on the 28th, 29th of June at the EU summit in Brussels.”

On reform efforts in Europe:

“The important thing is not to just announce reforms but to implement them. And so far I’m not fully convinced that the time bought with the various bailouts and measures has been wisely invested to solve the long-term issues of the crisis.”

On monetary policy:

“From our point of view, the Eurosystem has acted decisively by cutting rates, introducing the LTROs or setting up instruments like the SMP or the covered bond purchases program. All of these contributed to stabilize the euro area and buy time to solve the underlying problems.”

“So to those who ask what else the Eurosystem can do, I say that we have done our part, now it’s up to the political leaders to deliver on the fiscal and structural policy side and decide on governance issues. This is why it can’t be a short- term fix.”

On banking union:

“A banking union in itself is not a bad idea but it needs to follow fiscal and political union.”

On Greece:

“If there was a Greek exit, purely hypothetically speaking, the first-round effects would be manageable and this would not be the beginning of a complete euro-area disintegration. We also believe that second- and third-round effects will be manageable if carefully approached.”

To contact the reporters on this story: Jana Randow in London at jrandow@bloomberg.net; Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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