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Weber says IMF style body for EU not on

Tuesday, March 09 15:45:22

A European monetary fund that could be tapped to help financially troubled countries is a counterproductive idea that goes against the EU's no bailout rules, Bundesbank President and ECB member, Axel Weber said.

"Any discussion about bailouts is completely counterproductive, Greece has to concentrate on implementing its budget reform plans," Weber said. "The no-bailout clause is a central part of the European Union framework."

He added that discussions on the topic remained diverse but stressed that it was "not helpful to talk about ways to institutionalise help when the question is how to implement the budget reforms".

Weber's concerns add to strong criticism of the idea by ECB Executive Board member Juergen Stark on Monday. (for story click ID:nLDE62720I) However, German leader Angela Merkel has given her theoretical backing for the plans, suggesting that Europe's political and monetary powers are divided on the issue. Weber, who was speaking at a news conference on the Bundesbank's latest accounts, repeated a recent warning that German GDP may drop in the first quarter of this year due to the unusually severe winter weather in much of northern Europe.

But he added that Germany's export-led economy should power forward over the remainder of the year as it benefits disproportionately from the current pick up in global growth. "There are a lot of signs that after a subdued start to the year, the (German) economy will grow strongly for the rest of the year," he said. He also played down chances of a credit crunch corseting Germany's economy in the coming months. "A credit crunch should not hamper the recovery. This is a risk scenario but not the most probable scenario."

In contrast to his unease about a European rescue fund, Weber welcomed moves by Greece to get its finances in order. "I don't see any need for further consolidation," he said. "Greece has laid a credible strategy on the table and markets reacted by narrowing spreads, meaning Greece still has access to capital markets even if not under the same conditions as in earlier years."

He also said Greece's finances could be in better shape than Germany's if it succeeds with plans to slash its deficit. "In my view Greece will be back below 3 percent (deficit to GDP) before Germany."

The Bundesbank chief ducked questions on whether the ECB would stick to plans not to extend looser collateral rules beyond the end of the year to suit Greece. He also touched on the role of rating agencies, a hot topic in the wake of the financial crisis, and the possibility that a downgrade by a single agency could wipe Greek debt off the list of useable collateral in ECB lending operations come next year. (C ) Reuters