BERLIN (MNI) – ECB Executive Board member Joerg Asmussen on Friday
said the central bank cannot solve the Eurozone debt crisis on its own,
pointing to the limit of its mandate.

In the draft of a speech delivered at the European Communication
Summit in Brussels, Asmussen noted that the ECB is prohibited from
yielding to outside influence, “and rightfully so.”

“We must explain what the limits of our powers and mandate are,”
the central banker insisted. “The ECB cannot compensate for what others
– notably political authorities – fail to do.”

Asmussen noted that the ECB can change the market situation “within
minutes, by adjusting its interest rate, market interventions if needed,
adapting its collateral rules, or simply communicating its assessment.”

However, for the longer-term, considerable uncertainty remains, he
remarked: “Short-term fixes do not change the structural features of
European economies and markets.”

Those depend on the member states’ economic policies, which take
time to design and implement, the Executive board member reasoned. “Firm
commitments from governments can help reduce this uncertainty, but can
never eliminate it,” he said.

The trade-off between the short term and the long term creates a
fundamental communication challenge for the ECB, Asmussen said.

“If short-term crisis fighting is successful, for instance through
ECB actions, some of the longer term challenges might never be
addressed,” he lamented. “The immediate pressure subsides, and
incentives for governments weaken. More than once did we witness this
during this crisis. By contrast, if the fire-fighting in the short-term
does not succeed, there may not be a longer term to think about.”

The ECB is walking a tightrope in its communication strategy, the
Executive Board member said. Markets need reassurance that the central
bank will do what is within its power and mandate to guarantee that the
euro will not fail. At the same time, governments need to have the
right incentives to tackle the longer-term challenges, he explained.

He cautioned that “there should be no illusion that the ECB can
single-handedly ensure plain sailing for our economies and the markets.
There are limits of what we can do, and what we know.”

Asmussen was speaking one day after the ECB cut its main policy
rate to a record low of 0.75% and its deposit rate to zero. But these
actions were largely a disappointment to markets, which seemed to focus
more on Draghi’s clear attempt to discourage any expectation of
additional long-term refinancing operations or sovereign debt purchases.

Asmussen said markets want to see “immediate and forceful action”
from Europe’s politicians. And “their criticism of the slowness of the
European crisis response is in part justified.”

However, democratic politics takes time, he pointed out: “It is
open, noisy, and messy. We cannot do ‘crisis management by Politburo’.”

Commenting on the European rescue fund EFSF, Asmussen argued that
the options to leverage the fund actually had put off investors rather
than attracted them “because it made the EFSF structure more risky and
less understandable.”

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

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