European Central Bank Governing Council member Jens Weidmann said the French government should step up efforts to fix its public finances to fulfill its leadership role in restoring confidence in the region.
“Only together can France and Germany solve the current crisis,” Weidmann, who heads Germany’s Bundesbank, said in a speech in Paris today. “Stabilizing the monetary union requires both countries to be economically and politically strong.”
French President Francois Hollande is struggling to cut the budget deficit and revive an economy that shrank in the fourth quarter of 2012. The shortfall is forecast to violate European Union limits through 2014, and Weidmann said it’s “particularly important for the heavyweights” in the euro area to give “clear signals” to boost the credibility of fiscal rules.
The French government “has laid the foundation for some very promising reforms,” he said, adding that agreed labor-market changes “could be an important step.”
“However, regarding fiscal consolidation, more challenges lie ahead,” he said.
While fixing public finances in debt-strapped euro-area countries is likely to damp growth in the short term, “my appeal for consolidation does not stem from a desire to punish past sins,” Weidmann said. “If we adhere to our fiscal rules there is no need to set up the ECB as lender of last resort, let alone to call for inflation as a solution for resolving the debt problem.”
The Bundesbank chief also said that monetary policy should focus on securing price stability and mustn’t become “too closely intertwined” with fiscal policy.
“The ECB is certainly not able to solve the crisis in a sustainable manner,” he said. “Monetary policy, or for that matter, exchange-rate policy cannot be the solution. These are structural problems that require structural solutions.”