Bundesbank President Jens Weidmann rejected as absurd a claim by billionaire George Soros that the German central bank is preparing for the euro’s demise.
“That’s ridiculous,” Weidmann said in an interview with Bloomberg Television’s Betty Liu to be broadcast on “In the Loop” today. “What we are doing is we are preserving the stability foundation of the monetary union. I am deeply convinced that the monetary union can only survive if the euro remains a stable currency.”
Soros said in a speech in Berlin on April 12 that the Bundesbank is taking steps to limit the losses it would face if the euro fails. That’s “creating a self-fulfilling prophecy,” Soros said. “Once the Bundesbank starts guarding against a breakup, everybody will have to do the same. Markets are beginning to reflect this.”
Weidmann wrote to European Central Bank President Mario Draghi in February warning of the risks the ECB is taking in lending more than 1 trillion euros ($1.3 trillion) to euro-area financial institutions as it battles the region’s debt crisis. The Bundesbank has also set aside an extra 4.1 billion euros to cover itself in the event of losses arising from ECB policies.
Soros, best known for making $1 billion in 1992 betting the U.K. would be forced to devalue the pound, said if Europe’s monetary union collapsed, it would “leave the central banks of the creditor countries with large claims against the central banks of the debtor countries which would be difficult to collect.”
Such claims, which show up in the so-called Target-2 payments system, have mounted up at the Bundesbank during the debt crisis and totaled 547 billion euros at the end of February, Weidmann said March 13.
According to Germany’s Spiegel magazine, the ECB was alarmed that Weidmann raised concerns about the imbalances in his letter to Draghi, as it amounted to an admission that the monetary union could splinter. The letter hasn’t been published.
Weidmann refused to speculate in the interview about member states leaving the euro. He said rising bond yields in countries such as Spain are not necessarily bad as they provide an incentive for governments to carry out reforms.
Asked why he opposes further monetary stimulus, Weidmann, who sits on the ECB’s Governing Council, said the central bank’s job “is to ensure price stability.”
“If our actions lead to the sense of urgency disappearing, or political actions necessary to tackle the root causes of the crisis being delayed or postponed, then these are side effects that are detrimental,” he said.
The euro has been beneficial for Germany and “we fight for the common currency to be a stable one,” Weidmann said.
The interview is scheduled to be broadcast at 2:35 p.m. Frankfurt time today.
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