Euro zone recovery weak, needs nurturing - ECB's Asmussen

Reuters

FRANKFURT (Reuters) - The euro zone's economy recovery is weak, fragile and uneven and needs to be nurtured carefully, European Central Bank Executive Board member Joerg Asmussen said on Tuesday.

But speaking two days before the ECB's next monetary policy decision, Asmussen said recent survey data suggested that a turning point in the economic recovery seen earlier this year had not been reversed.

"Hard and soft data seem to suggest that the shoots of a recovery are there, yet they are still very green and need to be nurtured carefully," he said in the text of a speech for delivery in Stockholm.

"The recovery is indeed weak, fragile, and uneven," he added. "We are basically running on one engine - net exports; the other engine - domestic demand - is sputtering but has not yet really taken off."

A sharp drop in euro zone inflation to 0.7 percent in October, close to a four-year low, has increased pressure on the ECB to cut interest rates Thursday, but a Reuters poll of 23 traders pointed to the bank remaining on hold for now.

Asmussen said closer European integration would help foster confidence in the euro zone.

Turning to the bloc's plans for a banking union, Asmussen said private sector money should be first in line to reinforce the banking sector and that public money should only be used when private solutions are unavailable or have been exhausted.

"Whilst it is not yet clear whether these public backstops will need to be tapped, it is essential to have them in place. If not, the credibility of the whole exercise is put at risk," he added.

The ECB has promised to put top euro zone banks through rigorous tests next year. The ECB wants to unearth any risks hidden in balance sheets before supervision comes under its roof as part of the banking union.

The ECB's assessment of banks will identify pockets of weakness and prescribe corrective actions, Asmussen said.

"Doing this balance sheet assessment without a backstop in place would be a bit like getting on a boat in rough weather conditions, and not taking a life jacket on board," he added.

(Writing by Paul Carrel; editing by Patrick Graham)

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