European Central Bank Governing Council member Jens Weidmann said the results of last month’s European summit didn’t bring any clarity as to the direction the monetary union is taking.
“A definitive judgment is difficult to make, because the decisions taken leave a lot to interpretation,” Weidmann, who is also president of Germany’s Bundesbank, said at an event in Berlin today. “It remains unanswered whether the Maastricht framework is still valid or whether more integration -- including giving up national sovereignty -- is being sought.”
European leaders meeting in Brussels last week agreed to ease the path of countries including Spain and Italy to financial aid, while agreeing to map out a timetable for economic union by the end of the year. Those proposals may include centralized bank oversight, better controls on national budgets and possible moves toward joint borrowing.
“Fiscal aid should be the last resort of crisis management,” Weidmann said. “This position has by now been recognizably weakened.”
The Bundesbank has said the area can be stabilized either by strengthening the original framework for monetary union with joint rules for fiscal behavior -- set up under the Maastrict treaty -- or by pushing on toward centralized control of each other’s national budgets as part of a fiscal union.
“Looking at the current crisis management constantly raises the question of whether the existing framework is sustainable,” Weidmann said. “We are removing ourselves ever further from the Maastrict framework while constantly mutualizing risks and weakening the agreed rules.”
Weidmann added that while a banking union “can in principle be an important part of a stronger integration of monetary union,” it shouldn’t be established before effective joint supervision of the financial sector is created.
“A banking union is not a short-term instrument for the resolution of existing problems,” Weidmann said. “It’s an ambitious project,” which is no less important than monetary union itself.