EUROPE’S EXPANDING debt crisis has taken a turn for the worse with the unexpected resignation of the top German official in the European Central Bank. The departure of Jürgen Stark, who had opposed the bank’s decision to buy Italian and Spanish bonds, sent the single currency to its lowest level for six months.
It came as the US pressed Europe to calm the crisis by deploying “unequivocal financial force” to support weak economies.
At a G7 meeting in Marseille, US treasury secretary Timothy Geithner warned European leaders had “a lot more to do” to “demonstrate to the world they have the political will” to protect the euro zone.
The debt crisis was a “significant cause” of the slowdown in the US economy, he added.
With European political leaders at odds with each other over their halting response to the crisis, the ECB has made use of its operational independence to support weakened euro zone countries such as Ireland by buying up their debt.
Mr Stark’s exit from the ECB’s powerful executive board is a clear illustration of divisions within an institution which has radically expanded its remit in the battle against the crisis. His move stunned the bank, taking many senior officials by surprise. In Germany, politicians across the political spectrum described it as a “thunderbolt” and a “shock”.
The ECB is in a period of transition as its outgoing president Jean-Claude Trichet prepares to hand over in November to Italian central bank governor Mario Draghi.
Although its bond purchase programme does not have unanimous support among its top bankers, Mr Stark’s abrupt departure deprives the institution of a figure who was long seen to give to reassurance to German critics of its interventionist policy.
Germany’s economic establishment takes issue with such practices as they go far beyond orthodox central banking. Disquiet over the bond purchase programme drove the then Bundesbank chief and ECB governing council member Axel Weber to resign in February. He had been the favourite to succeed Mr Trichet.
The ECB said in a statement that Mr Stark (64) was leaving his job almost three years early for “personal reasons”. He later declined an opportunity to elaborate.
In a German newspaper column, however, Mr Stark hinted that he had resigned in protest against the ECB’s purchase of €129 billion worth of sovereign bonds of troubled euro zone members since May.
The euro zone finds itself “in a situation in which the massive sustainability risks in public sector budgets are undermining financial stability,” he wrote in an article to be published on Monday in the Handelsblatt business daily. He insisted in the article that “ambitious adjustment programmes” will lead to positive growth “within a short time”.
Unchecked public spending would, he warned have further negative effects on market sentiment.
In what appeared to be a parting shot against the purchase of sovereign bonds, he adds: “A fiscal stimulus would only allow debt levels rise and these increase risks even further. The adjustment costs would rise considerably by pushing the consolidation into the future.”
Mr Trichet thanked Mr Stark “from the bottom of my heart for a remarkable contribution to European unity”.
Chancellor Angela Merkel thanked Mr Stark for his “consequential and successful intervention” for euro zone stability.
“He thus stands for the stability culture that serves the interests of euro zone citizens, to which the German government is committed,” she added in a statement. The German leader is expected to nominate Jörg Asmussen, the 45-year-old number two in the federal finance ministry in Berlin, as his replacement.
