FRANKFURT (MNI) – It is not the European Central Bank’s mission to
enable banks to remain on the “drip” forever, Governing Council member
Nout Wellink said in an interview published Wednesday.

The head of the Dutch National Bank told Belgium’s Trends magazine
that “we cannot forever continue” providing banks with sufficient
liquidity to plug the holes in their balance sheets.

“We are not on earth in order to provide permanent financing to
bank,” he said. “I also want to distinguish between two types of banks.
There are, firstly, the banks that really need it because they are in
trouble. But these problems should be solved by national governments and
through restructuring. So the banks cannot remain on the infusion of the
ECB,” Wellink added.

“And secondly, there are banks that are addicted to our funding and
find cheap credit from the ECB useful. We also do not want that, because
it gives a distorted picture of the underlying strength of the banks.”

The ECB is thus en route to exiting its loose policy and “will take
decisions in early December,” he said.

“Meanwhile it is also clear that the further easing of U.S.
monetary policy has an impact on the euro exchange rate, though for the
ECB the exchange rate is not a target variable in itself,” Wellink said.

With regard to the Federal Reserve’s newest round of quantitative
easing, Wellink observed that while “it’s always easy to criticize,” the
Fed after all “has a different mandate than the ECB, which elicits a
different policy response.”

In particular, “the Fed must not only ensure price stability, it
must also ensure economic growth and employment.”

“There is also a difference in factual circumstances,” Wellink
added. “The risk that the U.S. economy would fall through the bottom
again, ending again in recession, was quite large.”

Europe’s authorities have discussed these issues “at length” with
their U.S. counterparts, who now see the risk of a double-dip as
“clearly reduced due to monetary policy,” he said.

Still, Wellink was skeptical. “I do not know whether it will work,”
he said.

The effect on the euro’s exchange rate is one of the risks facing
Europe as a result of U.S. policy, he noted.

“The Americans say in all sincerity that they were not seeking a
weaker dollar,” he said. “Some are questioning that statement. I do not
know. I think they are sincerely trying to exercise their mandate, just
as we want to carry out our mandate.”

Europe’s recovery “is continuing, albeit at a slower pace,”
according to Wellink, who said there were “no indications that a new
recession is lurking. There are also tentative signs that the recovery
has a self-supporting character.”

The euro will endure, but the Stability and Growth Pact should be
strengthened, he said.

–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com

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