EUROPEAN CENTRAL Bank executive board member Jürgen Stark has criticised euro zone periphery states for not accepting that their economic crises are largely home made and not the fault of his Frankfurt institution.
In an energetic defence, Prof Stark insisted the ECB would not turn a blind eye to individual euro zone member problems if they threatened wider price stability. But he insisted the current crisis was caused by struggling states failing to adjust to the euro zone rules overseen by the ECB and not, as many of these states now claim, because of Frankfurt’s one size fits all economic policy.
“I don’t see here a failure of the euro in itself but a failure by countries to make necessary adjustment using the instruments available,” he said in Munich last night.
The central bank saw upside risks to price stability, indicating another imminent interest rate rise, but insisted the crisis remained contained in peripheral countries, he said.
“The ECB is criticised publicly in one country currently under an EU-IMF programme that [the ECB] kept interest rates too low for too long, didn’t warn the government there of the consequences of this low-interest rate policy and that the ECB didn’t regulate the banking system there adequately,” said Prof Stark.
“The countries who had property booms could have intervened through tax policies and regulation but they didn’t. Instead, [they] consciously drove it on against all warnings from us that, for example, every boom is followed by a correction.”
At an event organised by Munich’s Ifo economic institute, Prof Stark questioned a claim by its president, Prof Hans-Werner Sinn, that the ECB is running a risky, shadow bailout fund worth €340 billion on top of official bail-outs.
Prof Sinn’s claim surrounds an interbank funding mechanism known as Target2 which, he says, has seen additional credit flows to Greece, Ireland and other countries, causing a credit shortfall in countries such as Germany.
What began as an academic argument has turned into an emotional row between the two economists.
“Our statistics confirm there is no shortfall and many banks in Germany, not short of liquidity, are lodging with us the surplus liquidity they aren’t giving on markets,” said the ECB executive board member.
