Monday, 15 July 2013

Jens Weidmann on the No Bail-Out Principle, Banks and Public Budgets

Dr Jens Weidmann, President of the Deutsche Bundesbank, recently spoke at the conference of the Bavarian Association of Cooperatives. In his speech he said the following,
In the euro area, there hasn’t always been a healthy balance between liability and control. The no bail-out principle was dangerously eroded for two major groups: governments and banks.
The losses of many banks were ultimately borne by the taxpayers of the countries in which they were based. And the taxpayers of some euro-area countries ultimately financed the budgets of others.
This is because these banks and governments were considered to be systemically important – it was feared that their financial difficulties could threaten the stability of the financial system. So it wasn’t the decisionmakers – those in control – who were ultimately liable. And this undermines the incentives for responsible behaviour.
The Maastricht framework – the rulebook for European monetary union – is therefore founded on the no bail-out principle: no euro-area country should be liable for the debts of another. However, this principle lost its binding effect when the crisis began – if not before.
We can only wonder if the "no bail-out" principle will ever be binding for the euro area. The eurocrats will do everything in their power to "save" struggling countries to keep their dreams of a United States of Europe alive. At the cost of taxpayers, freedom and prosperity.

Read his full speech here

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