LONDON (ShareCast) - Bundesbank president Jens Weidmann has insisted that the European Central Bank (ECB) cannot possibly resolve all of Europe (Chicago Options: ^REURUSD - news) 's problems and warned that inappropriate action could risk over-dependence on temporary measures. "Contrary to widespread belief, monetary policy is not a panacea and central banks' firepower is not unlimited", writes Weidmann in an opinion piece published on Tuesday morning (NasdaqGS: TUES - news) in the Financial Times. The German central bank president stressed the need to protect the ECB's independence and not to forget that the extraordinary measures being taken now are a response to an exceptional crisis. "We have to make sure that by putting out the fire now, we are not unwittingly preparing the ground for the next one," he commented, while warning that the current accommodative policy stance is a drug with side effects that become "all the more severe the longer the drug is administered." In particular, Weidmann warned that if banks become overly dependent on ECB funding then this runs the danger of encouraging more aggressive risk-taking by banks instead of prompting them to restructure their business model. Similarly, intervention in sovereign bond markets runs the risk of … Continue reading
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