ECB asset-purchasing blurs line amongst fiscal and monetary policy: Weidmann

FRANKFURT A proposed European advisory board to assess national budgets is not sturdy adequate and the euro area needs a fiscal authority with higher powers, Bundesbank President Jens Weidmann mentioned on Thursday.

The body proposed by the European Commission would work also gradually to rein in spendthrift governments and would not have adequate power to make sure the Commission respected its suggestions, Weidmann stated in prepared remarks in Lisbon.

“This does not bode effectively for the objective of a far more depoliticized application of the guidelines,” said Weidmann, who also sits on the European Central Bank’s price-setting Governing Council. “For that, a fiscal council needs to be truly independent, and its suggestions need to carry weight.”

The euro zone has struggled considering that its inception to locate approaches to make its member states observe price range rules intended to help them live within the constraints of a shared currency.

The advisory European Fiscal Board was proposed in October with members fully outside the Commission, whose critics say it has bowed to pressure to be a lot more lenient with main nations such as France than with other individuals.

Weidmann stated that a powerful authority is necessary because the euro area’s danger-sharing arrangement reduces the incentive for sound fiscal policy.

A fiscal union with compulsory centralized choice-generating would make the euro zone much less vulnerable but there is not adequate political support for such a move, Weidmann stated.

The ideal viable choice would be to keep economic and fiscal policy decisions at the national level with an independent oversight physique that could take some of the political pressure off the European Commission, Weidmann added.

(Reporting by Balazs Koranyi Editing by Ruth Pitchford)