Spain Should Solve Its Own Problems: German Bank Chief

Madrid should not count on ECB to buy its bonds, says Weidmann

Jens Weidmann, a policymaker at the European Central Bank and head of Germany's Bundesbank, said that Spain should look upon its rising bond yields as a signal that it needs to fix its own problems and not look to the European Central Bank (ECB) for help via bond purchases.

Reuters reported Wednesday that Weidmann has been spearheading a drive by some ECB officials to halt the central bank's crisis policies. He said that no ECB policymakers were in favor of using the bank's bond-buying plan to attack specific interest rates on sovereign bonds, and added that Benoit Coeure, a member of the ECB's board, was only stating a fact when he said last week that the program was still in existence.

Weidmann said he couldn’t see any reason to consider a third round of its long-term refinancing operation (LTRO). Previous rounds were quickly gobbled up by banks taking advantage of the three-year term and record low interest rates.

"We shouldn't always proclaim the end of the world if a country's long-term interest rates temporarily go above 6%," Weidmann said, referring to Spain, and added, "That is also a spur for policymakers in the countries concerned to do their homework and to win back [market] confidence through the pursuit of the reform path."

Spanish bond yields have been climbing amid mounting concern that Madrid will have to seek a bailout a la Greece; Spanish officials have said that the ECB should buy Spanish bonds to defuse the crisis. Weidmann said, "It is not our job to provide financial aid in order to extend necessary adjustments over time. That is exactly what the bailout fund is for."

Weidmann also rebuffed a demand by President Nicolas Sarkozy of France earlier in the week that the ECB play a bigger role in stimulating growth, saying that the best contribution the central bank could provide along those lines was the delivery of stable prices, which fits with the bank's existing mandate.

"It fills me with concern that a softening of the mandate is being discussed," Weidmann said. "A fundamental discussion about changing the mandate can definitely have effects on inflation expectations."

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