Bundesbank President Jens Weidmann believes that, in the debate about European reform, Germany and France must work in concert and "pull in the same direction." Speaking in Brussels, Mr Weidmann welcomed the reform proposals put forward by Emmanuel Macron, saying he believes it to be a great achievement that the French President has "created a convincing, lively narrative for the joint European project." The proposals have been greeted with a mix of goodwill and scepticism in Germany, he noted.

Balance between actions and liability must be maintained

Mr Weidmann stressed that the euro area is in much better shape now than before the crisis, on the one hand because of the remarkable catching-up process that has taken place in the former crisis-hit countries and which, for example, has made these economies more competitive, and on the other, because newly created institutions such as the European Stability Mechanism (ESM) and the banking union have made the euro area more stable. However, the steps taken so far have been insufficient "to put the euro area on as sound a footing as we would all like," he conceded.

From the Bundesbank's perspective, it is essential to the stability of the monetary union that the alignment of actions and liability be maintained, he stressed, explaining that, as a result, he would not necessarily rule out the expansion of mutual liability. This would, however, involve transferring certain sovereignty rights to the European level. "Otherwise, we would end up with imbalances and dubious incentives," he warned.

In this vein, given the shared responsibility for banking supervision, the Bundesbank is not opposed to a common European deposit insurance scheme per se, Weidmann continued. "On the contrary – such a scheme would, without doubt, contribute to a more stable financial system, as it would reduce the risk of bank runs." To achieve this, however, risks that have arisen under national responsibility would first have to be reduced, including stocks of non-performing loans on some euro area countries’ bank balance sheets, some of which are still very high. Mr Weidmann also noted that the large holdings of government bonds on bank balance sheets are problematic because they are backed by little to no capital.

In addition, Mr Weidmann called for private risk sharing in the euro area to be expanded, remarking that this is the purpose behind the Bundesbank's explicit backing of the European Commission’s proposal to establish a European capital markets union. Such a project has the potential to foster economic growth, dismantle barriers to cross-border investment, diversify corporate financing and strengthen private risk sharing, he said.

Upholding the principle of subsidiarity

In his speech, Weidmann also called upon the EU to focus on tasks that "clearly have European added value," including issues such as border security and migration, and recommended that these be tackled without delay. "This would also help individual member states to feel less disadvantaged and abandoned on account of their geographical location," he said. At the same time, the Bundesbank president pushed for the EU principle of subsidiarity to be applied more effectively, describing the task force for subsidiarity convened by European Commission President Jean-Claude Juncker as a welcome development.