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Bundesbank's Dombret Says Firewalls Can Only Buy Time

4/25/2012 6:58 AM ET

Bundesbank board member Andreas Dombret on Wednesday said there is no lasting solution to the crisis other than tackling root causes. Firewalls can help some countries to cope better with the effects of sudden shifts in investor sentiment, but, ultimately, all it can do is buy time.

Banks and investors should embark sustainable business models as extraordinary measures taken by the central banks will be withdrawn before it creates financial instability, he said.

The central banks serving as a regular source of funding for banks threatens to replace or displace private investors. This may give rise to new financial instability, said Dombret.

Emergency measures will not become the "new normal", he added.

The central banks cannot tolerate that their well-intentioned emergency measures result in a delay in necessary adjustments in the financial sector or protracted consolidation and reform efforts among governments.

by RTT Staff Writer

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