MILAN Italy's fate is crucial to determining the fate of the euro zone but the country must turn around its economy alone as it is too big to be rescued, European Central Bank policymaker Joerg Asmussen said on Friday.
In a speech in Milan, Asmussen said the euro zone cannot prosper if Italy, the bloc's third-largest economy, is not growing. The Italian economy is mired in its longest post-war recession and has contracted for eight successive quarters.
"Italy is too big to be rescued from the outside, it has to make the turnaround on its own," Asmussen said in the text of a speech for delivery at Bocconi University in Milan, where he studied in 1991-92.
"Its fate will critically determine the fate of the euro area," he said. "In this sense, the future of the euro area will not be decided in Paris or Berlin, or in Frankfurt or Brussels. It will be decided in Rome."
Asmussen, a German who sits on the six-man Executive Board that forms the nucleus of the ECB's policymaking Governing Council, stressed that every country in the 17-member euro zone "has a responsibility to pull its weight".
"But because of my personal experiences in this country, I neither worry about the future of this country nor about the future of the euro area," he said.
Turning to the euro zone's banking union, Asmussen said credible national backstops must be put in place before the ECB concludes its health check of banks in October 2014.
"If not, the credibility of the whole exercise is put at risk as the outcome will then almost certainly be negatively perceived by market participants," he 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."
The ECB promised on Wednesday to put top euro zone banks through rigorous tests next year, staking its credibility on a review that aims to build confidence in the sector.
The ECB still supported plans for a Single Resolution Mechanism to deal with troubled banks entering into force in January 2015, Asmussen said.
He also favored the harmonization of corporate tax codes, bases and rates in Europe.
"Ideally, such a strategy would involve all EU countries. But if this is not feasible, euro area countries could lead the way by deepening the fiscal union in this area," he said.
(Reporting by Lisa Jucca; Writing by Paul Carrel; Editing by Susan Fenton)