Germans fear losing sway as top man quits ECB

BERLIN, Sept 10 Sat Sep 10, 2011 6:10am EDT

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BERLIN, Sept 10 (Reuters) - Germans expressed shock and fear about the direction of euro zone policy on Saturday after their top official at the European Central Bank resigned over a conflict over the bank's response to the debt crisis.

The resignation of ECB chief economist Juergen Stark, a member of Angela Merkel's conservatives, is also a major blow to the Chancellor who has been deserted by several top allies and this month faces a vote on expanding the euro zone bailout fund which could even cost her job.

"The end of the ECB as we knew it," a headline in the Financial Times Deutschland stated baldly.

"Now it is over once and for all. The phase in the history of the ECB which was moulded by the Bundesbank," wrote commentator Wolfgang Proissl.

Germans, whose sacred Bundesbank was a model for the ECB and whose strong economy has underpinned the euro zone since it was created, fear they have lost the argument for stability to southern nations, who they view as financially irresponsible.

Those fears have been compounded by the fact Frenchman Jean-Claude Trichet will be replaced at the helm of the ECB by an Italian, Mario Draghi, in November.

Above all, there has been anger about the ECB's decision to buy Greek, Portuguese, Irish and now Italian and Spanish bonds to help tackle the debt crisis, a move Merkel tacitly approved of.

That was the main reason Stark, known as a hawk at the ECB, quit, sources said.

Former Bundesbank President Axel Weber, who had been front runner to succeed Trichet at the ECB, resigned in protest at the same policy in February.

"Stark held the same view of the bond-buying as Axel Weber and the current Bundesbank president," said Manfred Neumann, emeritus economics professor at Bonn University and former thesis adviser to Bundesbank chief Jens Weidmann.

"It is a position that all the Germans have. This is a sign of huge problems within the central bank. The Germans clearly have a problem with the direction of the ECB."

Germans fear the policy is part of a move to a "transfer union" and goes against the original treaty which forbids euro zone states from taking on the debts of other members.

In a visceral comment in the Frankfurter Allgemeine Zeitung, Holger Stelzner described the "sad evolution of monetary policy" and accused the ECB of acting on bond markets to save failed governments and Italy, which refused to cut spending.

"By buying government bonds, the ECB was itself helping to turn monetary union into a debt community with unlimited liability," he wrote. He also described the hardening of northern and southern camps in the ECB and accused southern states of "switching on the printing presses to iron out the shortcomings of fiscal policy."

In a reflection of just how worried Germans are about that policy and the euro zone crisis in general, even German President Christian Wulff last month criticised the ECB's bond buying policy -- a highly unusual foray into financial policy.

A poll for broadcaster ZDF this week showed that 76 percent of Germans opposed granting any further aid to Greece.

All this could be very dangerous for Merkel.

Some commentators believe Stark's move will embolden rebels in Sept. 29's vote on the European Financial Stability Facility (EFSF).

Although Merkel will win the vote because opposition parties support the planned law, her authority would be badly damaged if she fails to secure a majority from within her own centre-right coalition and she may be forced to call elections.

Bild newspaper said former Bundesbanker Edgar Meister had attacked Merkel's government for failing to give Stark sufficient support -- echoes of criticism she faced after Weber's resignation.

(Reporting By Madeline Chambers, editing by Mike Peacock)

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