Reuters: Stark ECB exit hits shaky eurozone at worst time

11 September 2011

The resignation of the top German official at the European Central Bank could hardly have come at a worse time for eurozone policymakers as they grope for a way out of the deepest crisis in the single currency's 12-year history.

Jürgen Stark's departure from the ECB's Executive Board in despair at the policy of buying government bonds to prevent the crisis spreading, comes as policymakers in Berlin and beyond are preparing for the growing possibility of a Greek default. "It's the ECB that is holding the show together, so anything that weakens the ECB is bad news", said an EU official involved in financial crisis management. Stark's walkout will further sap the ECB's credibility with Germany's conservative financial establishment, which saw the bond-buying as an improper means of financing government debt, and among voters in Europe's largest economy.

"This comes at a very, very bad time and it's certainly serious", said Jean Pisani-Ferry, director of the Bruegel economic think-tank in Brussels. "If the ECB is shackled in its ability to buy Italian and Spanish bonds and at the same time we have to do a real restructuring of Greece's debts, with a proper haircut, we risk a contagion shock spreading to other countries. If the ECB is hamstrung by a lack of consensus, that is the risk."

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