Bundesbank president Jens Weidmann drew a line in the sand on Friday, speaking about proposals for a new European scheme of common deposit insurance. It is crucial, he said, that the program does not become a fiscal safety net.
“Banks in the euro area have a sizable share of sovereign bonds on their books. To insure euro-area bank risks in such a situation would be tantamount to insuring fiscal risks,” the Financial Times reported Wiedmann as saying at a conference in Frankfurt.
“Given that the member states themselves still decide freely and independently on the level of government expenditure and taxes, this ultimately sets the wrong incentives: finance ministers would see less of a need to pay adequate attention to the sustainability of public finances.”
Weidmann’s comments underscore the divide between Germany and France on the issue of how to treat the euro zone’s ills. German officials have consistently expressed concerns that under such a common deposit scheme fees levied on German banks will be used to pay off depositors in other countries.
Germany’s top central banker went further in his preconditions, saying that banks in the euro area would have to either fully provision for non-performing loans or divest them. In short, in Weidmann’s view, euro area banks would have to be completely bulletproof before Germany would consider agreeing to such a scheme.