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Asmussen Says ECB Prepared for Liquidity Exit When Time Is Right

European Central Bank Executive Board member Joerg Asmussen said policy makers are prepared to reduce excess liquidity in financial markets when the time is right.

“Conceptually and practically we are prepared for an exit,” Asmussen said in a speech in Berlin today. “But in light of increasing tensions in financial markets, it is too soon to start the exit.”

The ECB has provided financial institutions with more than 1 trillion euros ($1.26 trillion) of cheap three-year loans to unlock markets after the sovereign debt crisis eroded confidence in the region’s governments and banks. As the economic outlook deteriorates, speculation has increased that policy makers may add to stimulus as soon as next month.

“ECB measures can’t replace what governments have to do to solve the crisis: budget consolidation, structural reforms for growth and employment, strengthening of the banking sector,” Asmussen said. “The ECB has made its contribution and will continue to do so, for example by developing a vision for where we want to be in Europe in 10 years. But now it’s above all up to governments.”

Asmussen said the ECB’s non-standard measures are temporary and can’t be a substitute for government action.

“We can provide liquidity and have done that,” Asmussen said. “What we can’t do is give banks capital to recapitalize; we can’t clean up their balance sheets and repair or unwind them. That’s not part of our mandate and we’re lacking the instruments. That’s for others to do.”

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