ANALYSIS:First Weber and now Stark have put spotlight on an institution already struggling to contain the growing debt crisis

JÜRGEN STARK’s abrupt decision to quit the powerful executive board of the European Central Bank came as a bombshell in the bank’s Frankfurt HQ.

His unexpected exit marks a second major German defection from the institution in months, dealing a fresh blow to the struggle to contain the growing debt crisis in the euro zone.

Inevitably, it raises further questions over the divisions stoked within the ECB by its extraordinary interventions in sovereign bond markets.

Axel Weber stood down in February as chief of Germany’s Bundesbank, resigning his seat on the ECB governing council in the process. He had been firm favourite to succeed Jean-Claude Trichet when he retires next month, but could not stomach the bond-buying programme.

Although he was never as vocal as Weber, Stark is also known to harbour deep reservations about the scheme. The ECB simply said he was resigning “for personal reasons”, yet the conclusion was immediately drawn that he could no longer tolerate such interventions. The explanation might be more nuanced of course, but Stark is known to have opposed last month’s decision to buy up Italian and Spanish bonds.

Stark had almost three years left on the ECB’s executive board. In spite of his distaste for the bond scheme, he has publicly held the line in support of the bank and always conveyed the impression that the endeavour was something he could live with. In addition, he is known to have been unhappy with Weber’s public disavowal of the scheme at a time of persistent tension in financial markets.

With Weber’s Bundesbank successor Jens Weidmann still finding his feet, Stark’s has been the most prominent German voice at the ECB. In the way of things in the euro zone, this role is hugely significant.

At the highest levels in Berlin, he is regarded as a very safe pair of hands. At a time when the ECB is battling resistance in Germany to its expanding remit, Stark was seen as a bulwark representing the country’s instinctive scepticism over anything other than a traditional role for central banks. With Italian central bank governor Mario Draghi set to take the helm of the bank next month in a job that was Weber’s to lose, this is no small matter.

Resistance to the ECB’s expanding role runs deep in Germany’s economic establishment. Weber’s Bundesbank colleagues still cling to the notion that actions such as bond-buying should be beyond the pale for any self-respecting central bank. This is directly in line with German economic orthodoxy, fuelling suspicion and disquiet in the German body politic about the ECB’s new role.

Such scepticism rankles with Trichet, who is to the fore of the increasingly complex campaign to keep the single currency intact.

At a press conference on Thursday, he lost his composure when asked about German antipathy about the ECB’s response to the crisis and insisted its record was exemplary. As the ECB confirmed yesterday that Stark will take his leave by the end of the year, inevitable questions were raised as to whether this reflected his unhappiness with Stark’s imminent departure. Whatever the truth in that, fresh doubt has been sown over the disunity within the bank’s ranks.

The ECB wants the euro zone bailout fund to take over its bond-buying role. Although EU leaders resolved to empower the fund to do just that, parliamentary approval is awaited in most euro zone countries.

As a result, Trichet and his allies felt they had no option last month but to take the momentous move to buy Italian and Spanish bonds. Stark wasn’t the only opponent. Weidmann resisted too. Within four weeks, the ECB had spent more than €50 billion.

Buying the bonds of small countries like Ireland, Greece and Portugal is one thing. Taking the strategy to the market for Italian and Spanish bonds is quite another. The very scale of these countries greatly increases the risk in the initiative and raises questions as to when the ECB will be able to reverse course.

No wonder Trichet has been pressing leaders to get a move on with the overhaul of the bailout fund. It is difficult to escape the conclusion that Stark’s departure makes a difficult situation worse.