No urgent need or room for fiscal expansion in much of euro zone: Weidmann

By Gernot Heller

BERLIN (Reuters) - Many euro zone countries have neither the leeway nor any urgent need to increase fiscal spending, so they should focus on reform instead to improve their growth potential, Jens Weidmann, the head of Germany's Bundesbank, said on Wednesday.

An expansionary monetary stance is appropriate for now but should not be maintained longer than necessary, because the negative side effects grow over time, Weidmann told Reuters before departing for the G7 summit in Japan.

"Expansive monetary and fiscal policies will not be able to boost growth in the long run," said Weidmann, who also sits on the European Central Bank's Governing Council.

He added he didn't see "the urgent need, nor the required space in many countries" for an expansive fiscal policy.

"In order to lift the world economy onto a path of higher growth, reforms are needed which strengthen innovation and competition," Weidmann said.

The German central banker reiterated his defense of the ECB's expansionary monetary policy, saying the measures were "appropriate" with inflation expectations subdued and just moderate growth in the euro zone's economy.

But interest rates should remain low no longer than strictly necessary, Weidmann said. An exit should not be delayed simply to avoid putting a burden on the public finances of some euro zone countries.

Weidmann also repeated his warning that foreign exchange rates should not be influenced to support the economy by making exports cheaper.

"It must be clear to all that engaging in competitive devaluation wreaks huge economic damage," Weidmann said.

(Reporting by Gernot Heller; Writing by Balazs Koranyi and Michael Nienaber; Editing by Larry King)

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