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ECB’s chief economist resigns; European markets, euro plunge

ECB’s chief economist resigns; European markets, euro plunge
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First Published: Sat, Sep 10 2011. 02 37 PM IST
Updated: Sat, Sep 10 2011. 02 37 PM IST
Berlin: European Central Bank (ECB) chief economist Juergen Stark stepped down on Friday, plunging European stock markets into turmoil, while the euro dropped to the lowest level against the US dollar since February.
Stark had repeatedly spoken against ECB’s controversial bond buying programme favoured by its president Jean-Claude Trichet, arguing that it will increase the risk of inflation in the 17-nation euro zone.
He maintained that it could also endanger the bank’s main goal of preserving stability in the euro area.
Stark had demanded that instead of driving up the debt spiral, the debt-ridden nations should tackle the root cause of the present crisis.
Announcing Stark’s surprise resignation, ECB said he will leave office nearly three years earlier than his term’s expiry in 2014 for “personal reasons.”
An ECB statement said that Stark, who is a member of the ECB governing council, will continue to function on his post until a successor is found before the end of this year.
His resignation led to stock market turmoil across Europe, while the euro fell to $1.365.
In Frankfurt, the DAX recouped some of its losses earlier in the day after a week of volatile trading, but fell 4% as the resignation rattled the markets and closed at 5,189.93 points.
In Paris, the CAC 40 index plunged 3.6% to close at 2,974.59 while London’s FTSE 100 ended the day at 5,214.65, 2.35% lower.
Stark’s resignation came as the finance ministers and central bank governors of the G-7 nations opened a two-day meeting in the French port city of Marseilles to work out ways to avert a global recession and to deal with the euro zone sovereign debt crisis.
Stark has been saying that euro-zone nations should take further measures to consolidate their budgets, scale down their debts and to increase the competitiveness of their economies through urgently-needed reforms.
Over a month ago, Stark had strongly opposed the ECB governing council’s decision to resume its bond-buying programme amid concern that the euro-zone’s larger economies such as Italy and Spain may be sucked into the debt crisis.
It began buying the bonds of countries threatened with a debt default after Greece was bailed out with the support of a financial rescue package of €110 billion in May last year.
Shortly after the Greek bailout, the euro-zone nations set up a €440 billion financial rescue fund to prevent the Greek crisis from spreading to other heavily-indebted member nations.
According to media reports, Joerg Asmussen, state secretary in the German finance ministry, is likely to be nominated as his successor.
Before joining ECB in 2006, Stark had served as the state secretary in the German finance ministry and as a management board member of the German Bundesbank.
Stark’s resignation comes at a very inconvenient time for Chancellor Angela Merkel, who is facing a strong challenge from within her own centre-right coalition to a plan to expand the euro zone’s financial rescue fund before a crucial vote in parliament at the end of this month.
His departure from ECB is expected to strengthen the government’s critics, who argue that the euro-zone’s financial bailout would only perpetuate a steady transfer of funds from the rich to weaker nations and would make recipient nations complacent about implementing austerity programmes and economic reforms.
Merkel thanked Stark for his contributions to make the euro a strong currency. For years, he had “actively and successfully” engaged himself to preserve the stability of the common currency, she said in the statement.
Trichet expressed his deep appreciation for Stark’s “years of outstanding contributions” for the European Union, especially during his term as the ECB governing council member. Stark had worked with “great devotion” for a strong euro, Trichet said.
Stark, 63, is the second German representative on the ECB governing council to step down within the last seven months following policy differences over the bank’s handling of the euro zone debt crisis.
When Axel Weber stepped down as the president of the German Bundesbank in February, he had also laid down his office as ECB governing council member and announced that he has no intention to succeed Trichet, who retires at the end of October.
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First Published: Sat, Sep 10 2011. 02 37 PM IST