Tuesday

31st May 2016

Bundesbank chief: Eurozone crisis could last 10 years

  • Weidmann - 10 years needed to overcome the crisis (Photo: Chatham House)

Germany's central bank chief Jens Weidmann has said the eurozone crisis may take ten years to overcome, just as top euro officials claimed their response to the crisis is working.

"Overcoming the crisis and the crisis effects will remain a challenge over the next decade," Weidmann told Wall Street Journal in an interview published on Wednesday (17 April).

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A member of the European Central Bank, Weidmann did not exclude a further interest rate cut "in response to new information."

The ECB key interest rate was lowered to a record 0.75 percent last year and has been kept at that level ever since. But while banks can borrow money from the ECB at such low interest rates, they have not lowered their own rates when lending to businesses or people.

"Everyone is asking what more can the central bank do instead of asking what other policy makers can contribute," Weidmann noted.

He urged European governments to continue reforms and warned that "the calm that we are currently seeing might be treacherous."

As for the Cyprus bailout, Weidmann said it was a good decision to include losses for depositors above €100,000.

"The Cypriot case shows that it's possible to wind down banks. This is in principle a good thing, because it means that taxpayers don't always have to step in to bail out banks," he said.

Meanwhile, other central bankers gathering in Washington for the International Monetary Fund's spring meeting also pointed to the limitations they have in helping economies overcome the crisis.

Mervyn King, the outgoing governor of the Bank of England, said that “there is the risk of appearing to promise too much or allowing too much to be expected of us," the Financial Times reports.

Top eurozone officials say that "Europe is responding" to the crisis and emerging stronger from it.

In a joint op-ed for the New York Times, Eurogroup chief Jeroen Dijsselbloem, economics commissioner Olli Rehn, ECB member Joerg Asmussen and the heads of the eurozone bailout fund and the European Investment bank, Klaus Regling and Werner Hoyer, admitted that the crisis revealed "structural problems" in the set-up of the economic and monetary union.

"But in the eye of the storm, we strengthened the foundations of our currency and improved the sustainability of our economies," they wrote.

The IMF takes a less optimistic view. On Tuesday it warned that the eurozone's economic recovery is falling behind that of the US and that swifter action by governments is needed to implement the so-called banking union.

But elections in Germany in September and the reluctance of other states to cede more powers to Brussels is stalling the process.

Finance ministers baulk at tax-avoidance rules

Member states will discuss again in June a proposed directive to outlaw practices used by large companies to avoid paying taxes. Meanwhile, the European Parliament makes progress on its probe of Panama Papers.

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