The European Central Bank needs to go “back to the normal procedures” after “extraordinary” measures such as its massliquidity injections, according to the former Bundesbank President who presided over the inception of the single currency.
Ernst Welteke told CNBC: “Now it's time for the ECB to go back to the normal procedures and means… We need to admit that in 2010 when these problems occurred, the only common institution ready to take action was the ECB and the finance ministers and the governments were not ready.”
Welteke, who resigned from the central bank in 2004 amid controversy over a hotel bill paid for by a commercial bank, defended the euro against its critics and said that the single currency could survive an exit by one of the smaller peripheral countries.
In recent months, a growing number of voices have called for the euro to be disbanded as countries such as Greece and Spain have struggled.
“We haven't had any turmoil of the currency. What we have is a sovereign debt problem,” he said.
“If one of the smaller (countries) would leave the European Monetary Union, I do not believe that this would solve any problem or hamper the functionality of the EMU.”
There have also been tensions between Germany, the euro zone’s biggest economy, and other countries about the best way to solve the crisis.
The Bundesbank has also seemed to be at odds with the ECB over how cautious to be with monetary policy. Bundesbank chief Jens Weidmann has urged ECB President Mario Draghi to rethink the easing collateral rules and warned about wider risks being stored up in the European financial system
Welteke described the Bundesbank’s approach as “a bit old fashioned” in “this extraordinary environment, but pointed out that the actions of the central bank could only be judged with hindsight.
The markets’ focus returned to Spain on Friday after ratings agency Standard & Poor’s downgraded the country’s sovereign debt rating to BBB+ from A on Thursday night.
“Spain is one of the countries where we have had a battle in the past,” warned Welteke.
He also pointed to the problem of youth unemployment in the country – now over 50 percent according to official statistics.
Youth unemployment in the peripheral countries is the biggest problem facing the euro zone, Welteke believes.
He warned that “social unrest” and “political tensions are what could ultimately lead to the disbanding of the euro zone.