jackovesk
10th September 2011, 01:38
Germany's top representative on the European Central Bank resigns in protest
The Wall Street Journal September 10, 2011
http://resources1.news.com.au/images/2011/09/10/1226133/626425-110910-jurgen-stark.jpg
Germany's top euro-zone central banker, Jurgen Stark, has quit the European Central Bank.
GERMANY'S top representative on the European Central Bank has resigned in an apparent protest, dealing a severe blow to the steward of Europe's common currency amid the Continent's worsening debt crisis.
The ECB said Jurgen Stark, its chief economist, was resigning for "personal" reasons with nearly three years remaining in his term. But people familiar with the matter said his decision was driven by frustration over the bank's expanding role in backstopping the region's finances.
Mr Stark has been the ECB's most sceptical voice on policies to jumpstart the euro-zone economy by propping up countries such as Greece, Portugal and Italy using asset purchases or by keeping interest rates low.
The surprise exit of Mr Stark -- the second senior German official to depart the ECB over ideological differences in recent months -- jolted markets in Europe and the US, as concerns over the stability of the central bank's senior leadership added to fears about Greece and Europe's banks. The euro suffered its biggest one-day drop in two months, finishing at $US1.3657, its lowest finish since February.
In Germany, the benchmark DAX stockmarket index finish down 4 per cent, the lowest close since July 2009. In Milan, the FTSE MIB index plunged 4.9 per cent, also a two-year low. on Wall Street, the Dow Jones Industrial Average tumbled 303.68 points, or 2.69 per cent, to 10,992.13, its fifth drop out of the last six sessions.
"At the very least, this (resignation) adds to the uncertainty and to the sense of division among European policymakers," JPMorgan Chase economist Greg Fuzesi wrote in a research note.
Austrian central bank governor Ewald Nowotny said Mr Stark's departure wouldn't affect ECB decision-making. "The basic orientation of the ECB, which is clearly set in the EU treaty, remains untouched by the resignation of Jergen Stark," Mr Nowotny said in a statement.
The upheaval in ECB's ranks comes at a sensitive time in Europe's battle to bring the nearly two-year-old debt crisis on its periphery under control. Greece, the first country to seek a bailout, is once again teetering on the brink of insolvency. Investors are increasingly worried about the prospects of larger countries such as Italy and Spain.
The ECB has been at the forefront of Europe's efforts to quell such fears. In May 2010, it started buying government bonds of Greece and other troubled euro-zone countries in a bid to keep rising borrowing costs from crippling those economies. It expanded the program last month to include Italy and Spain, and since then has bought more than 50 billion euros ($65bn) in government bonds.
But the discord within the bank's governing council is likely to raise new doubts over Europe's ability to bring the debt crisis under control.
Critics of the ECB's market interventions, including Mr Stark, believe it is up to euro-zone governments, not the ECB, to rescue troubled states. By intervening so forcefully, the ECB has assumed a political role that will ultimately undermine its claim that it isn't subject to political influence.
ECB officials have taken pains in recent weeks to counter growing criticism that the bank is overstepping its charter and assuming untold financial risk with its actions.
Such worries are strongest in Germany, where the country's own central bank, the Bundesbank, is firmly rooted on the principle of independence from politics. Many Germans believe that tradition is at the core of their country's own economic success and worry that it is now being undermined.
"From a German perspective, this is not a very good sign," said Kai Karstensen, an economist at Ifo Institute in Munich.
The resignation is fuelling a debate in Germany about whether the euro will become a less-stable currency thanks to the escalating euro-zone debt crisis. Such a debate could indirectly make it harder for Chancellor Angela Merkel to justify expensive government policies to prop up the euro.
"Stark is the second German central banker to leave the ship because he sees that the German stability culture can't be upheld in Europe," says Thorsten Polleit, economist at Barclays Capital in Frankfurt. "There's a clear potential now that the German public will become increasingly disenchanted with the euro project."
That disenchantment is already being expressed by leading politicians. German President Christian Wulff, whose position is largely ceremonial, has called the ECB's bond purchases "politically and legally questionable." The head of German's centre-left SPD party, Sigmar Gabriel, has also denounced the purchases.
There are worries within Germany that vulnerable countries in southern Europe will soon have a stranglehold on ECB decision-making. That impression could further undermine Germans' confidence in the euro at a time when their country is being asked to foot much of the bill to bail out the flagging members.
Mr Stark, a former top Bundesbank official and one of the ECB's most outspoken anti-inflation "hawks," opposed the ECB's decision last month to reactivate its government bond purchase program, as did the head of Germany's central bank, Jens Weidmann.
In an op-ed for the German business daily Handelsblatt, released today, Mr Stark wrote that government efforts to save the euro zone have fallen short. He called for a "far-reaching reform of the mechanism for decisions and sanctions."
"We find ourselves in a situation in which massive sustainability risks in public budgets are eroding financial stability," he wrote.
As head of the economics division at the ECB's Frankfurt-based executive board, Mr Stark has held considerable sway over the economic analysis behind the ECB's interest-rate decisions. He will leave once a successor is appointed, which will be by the end of the year, according to bank protocol
His resignation comes at a dicey time for the ECB.
The eight-year term of ECB president Jean-Claude Trichet's ends at the end of October. He will be succeeded by Mario Draghi, who currently heads the Bank of Italy. Three representatives from Southern Europe already sit on the six-member, Frankfurt-based executive board, including vice-president Vitor Constancio, from Portugal.
Although Germany accounts for 30 per cent of the euro-zone economy, its officials cast the same single vote on policy as those from smaller countries.
"In a situation where a few stable economies have to bear a lot of risk on behalf of smaller, less stable countries, in such a situation Germans might start to think this is a difficult way to structure the ECB," said Kai Carstensen, economist at think tank Ifo Institute in Munich.
German finance minister Wolfgang Schauble told German state television that Berlin will press for a German to replace Mr Stark. No candidate has been named, but one possibility is deputy finance minister Jorg Asmussen, who has negotiated many of the euro crisis plans for Germany.
Mr Stark's ECB resignation follows that of former Bundesbank president Axel Weber, who resigned in April. Mr Weber, who had been seen as the frontrunner to succeed Mr Trichet, later cited his opposition to the ECB's bond purchases as a factor in his decision to not seek the presidency.
Unlike Mr Weber, who repeatedly condemned the purchases when he was at the Bundesbank, Mr Stark refrained from publicly criticising the move. As recently as Thursday, he told a Japanese television station that the ECB's bond purchases, though temporary, would continue "as long as we see the risk that (the transmission of monetary policy) is impaired".
http://www.theaustralian.com.au/business/economics/germanys-top-representative-on-the-european-central-bank-resigns-in-protest/story-e6frg926-1226133627949
The Wall Street Journal September 10, 2011
http://resources1.news.com.au/images/2011/09/10/1226133/626425-110910-jurgen-stark.jpg
Germany's top euro-zone central banker, Jurgen Stark, has quit the European Central Bank.
GERMANY'S top representative on the European Central Bank has resigned in an apparent protest, dealing a severe blow to the steward of Europe's common currency amid the Continent's worsening debt crisis.
The ECB said Jurgen Stark, its chief economist, was resigning for "personal" reasons with nearly three years remaining in his term. But people familiar with the matter said his decision was driven by frustration over the bank's expanding role in backstopping the region's finances.
Mr Stark has been the ECB's most sceptical voice on policies to jumpstart the euro-zone economy by propping up countries such as Greece, Portugal and Italy using asset purchases or by keeping interest rates low.
The surprise exit of Mr Stark -- the second senior German official to depart the ECB over ideological differences in recent months -- jolted markets in Europe and the US, as concerns over the stability of the central bank's senior leadership added to fears about Greece and Europe's banks. The euro suffered its biggest one-day drop in two months, finishing at $US1.3657, its lowest finish since February.
In Germany, the benchmark DAX stockmarket index finish down 4 per cent, the lowest close since July 2009. In Milan, the FTSE MIB index plunged 4.9 per cent, also a two-year low. on Wall Street, the Dow Jones Industrial Average tumbled 303.68 points, or 2.69 per cent, to 10,992.13, its fifth drop out of the last six sessions.
"At the very least, this (resignation) adds to the uncertainty and to the sense of division among European policymakers," JPMorgan Chase economist Greg Fuzesi wrote in a research note.
Austrian central bank governor Ewald Nowotny said Mr Stark's departure wouldn't affect ECB decision-making. "The basic orientation of the ECB, which is clearly set in the EU treaty, remains untouched by the resignation of Jergen Stark," Mr Nowotny said in a statement.
The upheaval in ECB's ranks comes at a sensitive time in Europe's battle to bring the nearly two-year-old debt crisis on its periphery under control. Greece, the first country to seek a bailout, is once again teetering on the brink of insolvency. Investors are increasingly worried about the prospects of larger countries such as Italy and Spain.
The ECB has been at the forefront of Europe's efforts to quell such fears. In May 2010, it started buying government bonds of Greece and other troubled euro-zone countries in a bid to keep rising borrowing costs from crippling those economies. It expanded the program last month to include Italy and Spain, and since then has bought more than 50 billion euros ($65bn) in government bonds.
But the discord within the bank's governing council is likely to raise new doubts over Europe's ability to bring the debt crisis under control.
Critics of the ECB's market interventions, including Mr Stark, believe it is up to euro-zone governments, not the ECB, to rescue troubled states. By intervening so forcefully, the ECB has assumed a political role that will ultimately undermine its claim that it isn't subject to political influence.
ECB officials have taken pains in recent weeks to counter growing criticism that the bank is overstepping its charter and assuming untold financial risk with its actions.
Such worries are strongest in Germany, where the country's own central bank, the Bundesbank, is firmly rooted on the principle of independence from politics. Many Germans believe that tradition is at the core of their country's own economic success and worry that it is now being undermined.
"From a German perspective, this is not a very good sign," said Kai Karstensen, an economist at Ifo Institute in Munich.
The resignation is fuelling a debate in Germany about whether the euro will become a less-stable currency thanks to the escalating euro-zone debt crisis. Such a debate could indirectly make it harder for Chancellor Angela Merkel to justify expensive government policies to prop up the euro.
"Stark is the second German central banker to leave the ship because he sees that the German stability culture can't be upheld in Europe," says Thorsten Polleit, economist at Barclays Capital in Frankfurt. "There's a clear potential now that the German public will become increasingly disenchanted with the euro project."
That disenchantment is already being expressed by leading politicians. German President Christian Wulff, whose position is largely ceremonial, has called the ECB's bond purchases "politically and legally questionable." The head of German's centre-left SPD party, Sigmar Gabriel, has also denounced the purchases.
There are worries within Germany that vulnerable countries in southern Europe will soon have a stranglehold on ECB decision-making. That impression could further undermine Germans' confidence in the euro at a time when their country is being asked to foot much of the bill to bail out the flagging members.
Mr Stark, a former top Bundesbank official and one of the ECB's most outspoken anti-inflation "hawks," opposed the ECB's decision last month to reactivate its government bond purchase program, as did the head of Germany's central bank, Jens Weidmann.
In an op-ed for the German business daily Handelsblatt, released today, Mr Stark wrote that government efforts to save the euro zone have fallen short. He called for a "far-reaching reform of the mechanism for decisions and sanctions."
"We find ourselves in a situation in which massive sustainability risks in public budgets are eroding financial stability," he wrote.
As head of the economics division at the ECB's Frankfurt-based executive board, Mr Stark has held considerable sway over the economic analysis behind the ECB's interest-rate decisions. He will leave once a successor is appointed, which will be by the end of the year, according to bank protocol
His resignation comes at a dicey time for the ECB.
The eight-year term of ECB president Jean-Claude Trichet's ends at the end of October. He will be succeeded by Mario Draghi, who currently heads the Bank of Italy. Three representatives from Southern Europe already sit on the six-member, Frankfurt-based executive board, including vice-president Vitor Constancio, from Portugal.
Although Germany accounts for 30 per cent of the euro-zone economy, its officials cast the same single vote on policy as those from smaller countries.
"In a situation where a few stable economies have to bear a lot of risk on behalf of smaller, less stable countries, in such a situation Germans might start to think this is a difficult way to structure the ECB," said Kai Carstensen, economist at think tank Ifo Institute in Munich.
German finance minister Wolfgang Schauble told German state television that Berlin will press for a German to replace Mr Stark. No candidate has been named, but one possibility is deputy finance minister Jorg Asmussen, who has negotiated many of the euro crisis plans for Germany.
Mr Stark's ECB resignation follows that of former Bundesbank president Axel Weber, who resigned in April. Mr Weber, who had been seen as the frontrunner to succeed Mr Trichet, later cited his opposition to the ECB's bond purchases as a factor in his decision to not seek the presidency.
Unlike Mr Weber, who repeatedly condemned the purchases when he was at the Bundesbank, Mr Stark refrained from publicly criticising the move. As recently as Thursday, he told a Japanese television station that the ECB's bond purchases, though temporary, would continue "as long as we see the risk that (the transmission of monetary policy) is impaired".
http://www.theaustralian.com.au/business/economics/germanys-top-representative-on-the-european-central-bank-resigns-in-protest/story-e6frg926-1226133627949