Jens Weidmann, German Central Bank Governor, Says Expanding Euro Bailout Fund Won't Solve Crisis

10/22/2011 11:50 am ET | Updated Dec 22, 2011

BERLIN (Reuters) - Bundesbank president Jens Weidmann said in a newspaper interview released on Saturday that repeatedly expanding the euro zone rescue fund won't resolve the euro zone crisis.

In an interview with Bild am Sonntag released ahead of publication, Weidmann also warned against giving the European Financial Stability Facility (EFSF) a banking license. He said that would be a fatal path to take if states were able to switch on the printing presses.

Weidmann also said that raising the leverage of the EFSF would raise risks for German taxpayers. He said there were "good reasons" that EU treaties prevent the EFSF from obtaining a bank license.

"The crisis won't be resolved by permanently increasing the size of the euro zone rescue fund," Weidmann said.

Weidmann warned giving the EFSF a banking license would be tantamount to "turning on the printing presses for state finances and that would be in my view a fatal path to take. And there are good reasons that is forbidden by EU treaties."

He appealed to euro zone governments, saying they "must make a clear decision about which direction to go, how the future of the monetary union should continue."

Weidmann said it should also be remembered that there were also risks associated with increasing the leveraging the EFSF.

"With the size of the leveraging obviously the size of the risk rises," he said.

"The fundamental question is how long will it work in the euro zone that countries continue to operate their policies independently while at the same time increasingly collectivising the risks."

He warned against subordinating the central bank beneath financial policy.

"Its mission to ensure monetary stability and low inflation rates could then no longer be ensured."

(Reporting By Erik Kirschbaum)

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