By Paul Carrel
HAMBURG (Reuters) - The European Central Bank has done a lot to tackle the euro zone crisis and is running up against the limits of its mandate, Bundesbank chief Jens Weidmann said on Monday.
Weidmann, a member of the European Central Bank's Governing Council, resisted pressure from markets and some politicians for the ECB to do more to tackle the crisis by intervening to ease borrowing costs for governments in the euro periphery.
Governments' failure to take convincing action was increasing the pressure on the ECB to act, Weidmann said, but that restarting the bank's controversial bond-purchase program was not the right response to the crisis.
"We are seeing that the inaction from governments is increasing the pressure on the central bank and we are also seeing that are cannot solve the origins of the problem with these sovereign bond purchases," he told a forum in Hamburg.
Investors are clamoring for a "shock and awe" crisis response from the ECB akin to the massive money printing in the United States and Britain, but the ECB seems far from following suit despite the euro zone's spreading turmoil.
Markets nonetheless expect the ECB to take further policy action if euro zone government leaders make progress on further steps to tackle the crisis - such as a roadmap towards a banking union and fiscal integration - at a summit this week.
"Monetary financing is forbidden," he said, adding that undermining the rules on which the single currency bloc is founded is no way to stabilize the euro zone.
Weidmann said a banking union "can't be a quick solution to the crisis", adding "one cannot allow there to be illusion that there is an easy way out of this crisis".
A banking union could make sense but only at the end of a process that would require changes to European treaties, Weidmann said, adding that such a union should not be a way of introducing common Euro-bonds by the back door.
Weidmann opposed the idea of allowing the euro zone's permanent bailout fund to access the ECB's refinancing operations.
"I regard that as monetary financing," he said, with regard to the European Stability Mechanism (ESM).
The contagion effects from a Greek exit from the euro zone would be considerable, he said, though Greece would suffer most. However, these contagion risks were not a reason for other euro zone states to be blackmailed by Athens.
"The euro is a stable currency," he added, though he said the currency bloc faced a critical test.
Simply throwing more money at the euro zone crisis to try to impress markets is not the way to solve the problem, he said.
(editing by Ron Askew)