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ECB's Weidmann: ECB Proposals on Bad Loans Are 'a Sensible Way Forward'

17 Nov 2017 1:00 pm
By Tom Fairless 

FRANKFURT--German central-bank President Jens Weidmann sided with the European Central Bank in a dispute with Italian officials over how to reduce the quantity of nonperforming loans.

Speaking at a bankers' conference here on Friday, Mr. Weidmann--who sits on the ECB's rate-setting committee but has publicly opposed many of its crisis-fighting initiatives--said recent ECB proposals to deal with nonperforming loans are "a sensible way forward."

"We need to establish rules that ensure the prudent management of nonperforming loans in the future," he said.

The ECB proposed last month requiring banks to set aside more cash to cover newly classified bad loans. The proposal was criticized by senior Italian officials, including former Prime Minister Matteo Renzi, who said that would hurt credit creation.

"If they pass new rules, credit to small businesses will be impossible," Mr. Renzi wrote on Twitter.

But Mr. Weidmann said dealing with bad loans could help to justify the creation of a common bank-deposit insurance schemes for the eurozone, which could guard against future economic shocks.

The central-bank chief separately renewed his criticism of the ECB's decision last month to extend its giant bond-buying program without setting a concrete end-date.

"Setting a clear end date to net asset purchases would have merely meant refraining from pushing down on the accelerator even further--not putting the brakes on monetary policy," Mr. Weidmann said.

He also urged the German government to take steps to encourage greater participation in the workforce as the country's population ages.

"Without policy action, Germany's growth potential is expected to fall below 1% within the next decade due to the reduction in labor supply," he said.

Write to Tom Fairless at tom.fairless@wsj.com

(END) Dow Jones Newswires

November 17, 2017 08:00 ET (13:00 GMT)

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