FRANKFURT, Sept 2 (Reuters) - Extraordinary government and central bank aid to Europe’s recession-hit economies is justified but help must be temporary and a plan is needed to wean businesses off state crutches, Bundesbank President Jens Weidmann said on Wednesday.
With the euro zone economy shrinking by over a tenth in the second quarter, governments are borrowing record amounts to help businesses stay afloat and the European Central Bank is printing over a trillion euros to soak up much of this new debt.
Weidmann, a conservative policymaker with a track record of criticism of easy monetary policy, argued that the crisis-fighting measures were justified given the extraordinary downturn, which could still be exacerbated by lingering consumer caution.
“After the crisis, however, the emergency monetary policy measures would have to be scaled back again,” said the German central banker, who also sits on the ECB’s rate-setting Governing Council. “Fiscal policy should also not get used to an easy course, nor should it rely on interest rates to remain so low over the long term.”
“The state has to be careful not to interfere too much in corporate decisions, for example in the case of new investments,” Weidmann said. “The state is not the better entrepreneur.”
Weidmann nevertheless said additional measures may still be required to fight the crisis and noted that an extension of the German government’s jobs subsidy scheme to 24 months could be justified.
But the state should tighten regulations around the short-time work schemes to ensure that only viable businesses benefit and the funds are not used to maintain activities with no future, Weidmann added. (Reporting by Balazs Koranyi; Editing by Catherine Evans)
Our Standards: The Thomson Reuters Trust Principles.