The head of Germany’s central bank has warned that the economy risks becoming overly reliant on the massive fiscal and monetary support provided since the coronavirus pandemic struck and called for it to be scaled back soon.
Jens Weidmann, president of the Bundesbank, also criticised the EU’s plan to issue €750bn of new debt for its new recovery fund, warning that it risked creating “a kind of debt illusion” because the money would not be included in national debt figures.
His comments in a speech on Wednesday evening signal that a fresh north-south split could be opening up in Europe over the pace at which the exceptionally loose fiscal and monetary support should be withdrawn, as countries like Germany rebound faster from the pandemic than others such as Spain.
European countries have vastly increased their debt levels to finance measures that shield their companies and workers from the impact of the pandemic, while the European Central Bank has bought hundreds of millions in bonds to keep interest rates low.
Mr Weidmann, who is well-known for being one of the most hawkish members of the ECB governing council, said that most of these policies had been justified. But he warned: “It is important that all measures — including additional ones — are clearly limited in…