February 25, 2021

Resignation at European Central Bank Reveals Split

Stock markets swooned in Europe and the euro fell against the dollar after the bank announced the resignation of Jürgen Stark, a German who is the central bank’s de facto chief economist and also a member of its policy-setting governing council, and the sell-off continued in the United States, with the major indexes all falling more than 2 percent.

Although the central bank said that Mr. Stark was leaving for personal reasons, the impression was that Mr. Stark’s departure was connected to his well-known opposition to the bank’s buying of government bonds to ease pressure on countries like Greece, Italy and Spain.

Mr. Stark’s resignation, nearly three years before his term was up, is widely viewed as another fissure in the edifice of European unity, which has suffered as wealthier countries like Germany have been asked to underwrite poor performers like Greece.

“It’s a very bad sign,” said Daniel Gros, director of the Center for European Policy Studies in Brussels. “It means that the split within the E.C.B. that we thought was far down the road is here now.

“It puts a shadow over the E.C.B. and risks financial markets asking, ‘How long can they go on buying these Italian bonds?’ This indicates that the answer is, ‘Not as long as I had thought.’ ”

The government debt crisis among the 17-nation euro union’s weaker members continues to weigh on markets, and any sign of a deepening in the rift between rich and poor countries could further spook investors.

There is a chance that Mr. Stark’s departure could give the central bank a freer hand. Mr. Stark was an inflation hard-liner very much in the German tradition, and his dissent created an impression that the bank suffered internal divisions. Mr. Stark declined a request for comment.

But if, as expected, a German replaces him, that new member of the bank board is very likely to be as mindful as Mr. Stark of the fierce opposition that the bank’s policy has generated in Germany.

Germany’s finance minister declined to comment on reports that his country would recommend Jörg Asmussen, a deputy finance minister, to replace Mr. Stark, who was the only German on the six-member executive board. Mr. Asmussen has been a central figure in negotiations with other euro zone countries on how to deal with the sovereign debt crisis.

While Mr. Asmussen’s views on monetary policy are not well known, he comes from the same tradition of German economics as Mr. Stark — one that puts an emphasis on price stability and is skeptical of efforts to help countries that run up too much debt. So it is not clear if he would be any more receptive to the central bank’s bond buying than Mr. Stark has been.

When the Bundesbank, the German central bank, was Europe’s most powerful monetary authority before the advent of the euro union in 1999, it made controlling prices its mission. There are mounting concerns in Germany and elsewhere that the European Central Bank has overstepped its bounds in trying to fight the current crisis by acting as the buyer of last resort for Italian and Spanish bonds to prevent those countries from slipping closer to insolvency.

In a statement Friday, Kurt Lauk, president of the economic council for the Christian Democrats — the party of Chancellor Angela Merkel of Germany — called the resignation “a dramatic alarm bell for the fact that the E.C.B. must be led back to the right path.”

As the debt crisis continues, the future of the euro union has become increasingly uncertain. Lawmakers and citizens in countries like Germany, the Netherlands and Finland, which are known for fiscal responsibility, are watching events in Athens and Rome with growing skepticism and even alarm.

Mr. Stark had warned of rising danger from public spending in a column to be published Monday in the Handelsblatt newspaper, Reuters reported. “We are in a situation in which the massive sustainability risks in public sector budgets are undermining financial stability,” he wrote.

Jack Ewing reported from Frankfurt and Nicholas Kulish from Berlin. David Jolly contributed reporting from Paris.

Article source: http://feeds.nytimes.com/click.phdo?i=d53b6a5ec2a2a6f6fe97adc22410cfca

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