Weakest Eurozone Members Need Reforms, Not Money: German Finance Officials

Just as the European Central Bank (ECB) is about to launch a bond-buying program, several top German officials have said the worst performing Eurozone member states need to implement fundamental reforms.

MOSCOW, December 28 (Sputnik) — The European Central Bank (ECB) does not need to start buying sovereign bonds early next year in order to accelerate growth in the Eurozone, several German officials said Sunday, for several reasons. The first being the optimistic growth forecast for Germany for next year, which is anticipated to boost the whole Eurozone. Secondly, an implementation of full-scale monetary easing in the Eurozone will undermine efforts to enhance efficiency and economic competitiveness in financially weaker member states like France, as they will not feel the urgency for structural reforms.

 

"The (European) Central Bank has already introduced various measures to help growth… we see no reason to buy up state bonds now," Christoph Schmidt, an economic adviser to the German government, said as quoted by Reuters.

In Schmidt’s opinion, despite Eurozone deflation, a bond-buying program can quickly be launched in order to stave off falling prices when necessary. But preemptive easing would ruin the political will for economic reforms in less efficient member states, the expert said.

"The more active the central bank is… the bigger the risk that France and Italy throw the necessary reforms into the long grass," Schmidt said.

Previously, ECB head Mario Draghi repeatedly confirmed the regulator’s readiness to launch a full-scale monetary easing program. The ECB suggested that bond buying would spur inflation and economic growth by providing bigger volumes of cheaper liquidity to the Eurozone economy. Such a move is welcomed by Southern European nations, but Germany and several other Northern European nations have adamantly advocated a need for fundamental reform in the South, which suffers from low productivity and insufficient competitiveness, instead of pumping money liquidity into the inefficient region.

Jens Weidmann, member of the ECB Governing Council, in an interview with the Frankfurter Allgemeine newspaper also spoke out against the ECB's plan to launch a full-scale bond-buying program.

"As things are at the moment and if oil prices remain this low, inflation will be lower than expected, but growth will be better," Weidmann said. "The situation in Europe isn't as bad as some people believe."

According to Bundesbank data, Germany's economy will expand by 1% in 2015. This year German GDP added 1.4%, lower than the June forecast of 1.9%.

The ECB’s monetary policy is pretty lax already as the interest rate is ultra-low, kept at 0.05%; the regulator has intervened sporadically in the economy during the past two years. However, a full-scale bond-buying program would provide a significant boost in confidence to the Eurozone, including in financial markets.

Yesterday German Finance Minister Wolfgang Schaeuble also expressed skepticism toward the ECB plans to buy sovereign bonds, having said the regulator needs to take measures it considers necessary, as reforms in several members states should not be postponed.

“Cheap money should not be allowed to dent the reform zeal in some countries. There is no alternative to structural reforms — if things are going to improve again," Schaeuble said. “Germany's voice has weight… But even if we're the strongest economy, Germany can't always get its way. At the end of the day a compromise is what's needed. But the arguments from Jens Weidmann are strong and are listened to in the ECB,” German FM added.

In Schaeuble’s opinion, a compromise can be achieved via direct consultations between himself, the German chancellor Angela Merkel and ECB head Draghi.