Bundesbank President Jens Weidmann used an interview with the German “Welt am Sonntag” newspaper to voice concern about the agreement struck by the Italian government and the European Commission over the budget dispute. “Looking ahead, the Commission and other governments will find it harder still to insist on sound government finances,” he argued. If he could make a wish, Mr Weidmann explained, it would be for the rules to be implemented strictly and for their binding effect not to be weakened further – “that’s also important when it comes to the acceptance of further steps towards integration”, he remarked.

He also called on France to set about reducing its deficit, saying “it would be smart to make hay while the sun is shining, adhere to the 3% limit and reduce the structural deficit in an appropriate fashion”.

Isolationism the wrong response

With the euro set to celebrate its 20th birthday next year, Mr Weidmann said that for all the criticism the single currency has faced, it has racked up high approval ratings in most countries. Euro area countries experiencing a crisis can no longer use their own monetary policy and exchange rate as levers, which puts an even greater strain on national economic policy. “This, it would seem, is a point which did not get the attention it deserved before the crisis,” Mr Weidmann concluded.

The Bundesbank President conceded that the financial and sovereign debt crisis has eroded confidence in the market economy system. “But isolationism, and efforts to turn back the clock, are the wrong response,” he warned, arguing that Europe needs to focus on projects that deliver a discernible European value added for the general public. “Border protection, climate policy and defence are three examples I could name here,” he told the newspaper. While monetary union and political union would go well together, Mr Weidmann doesn't “see the willingness needed to take that step – there is no desire to transfer national decision-making powers on any great scale”.

Significant step towards normality

Mr Weidmann welcomed the ECB Governing Council’s decision to end the purchases of government bonds at the end of December 2018, hailing it as a “first, significant step in returning to normal”. At the same time, he stressed that the programme is still not over and that monetary policy will remain accommodative because principal payments from maturing bonds will continue to be reinvested for some time to come. The ECB Governing Council, he explained, “is keeping its foot on the accelerator, but not pushing it down any further”.