Germans fear losing sway as their top man quits ECB
BERLIN (Reuters) - Germans expressed shock and dread about the direction of euro zone policy on Saturday after their top official at the European Central Bank resigned in 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 worries 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 is 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.
"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." said Manfred Neumann, emeritus economics professor at Bonn University and former thesis adviser to Bundesbank chief Jens Weidmann.
Germans worry the policy is part of a shift to a "transfer union" and goes against the original treaty which forbids euro zone states from taking on the debts of other members.
One visceral comment in the Frankfurter Allgemeine Zeitung 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," said the paper in a leader. It also described a 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, even German President Christian Wulff criticized the ECB's bond buying in an unusual foray into financial policy last month.
A poll for broadcaster ZDF this week showed that 76 percent of Germans opposed expanding the euro zone's bailout fund.
DANGER FOR MERKEL
All this could be very dangerous for Merkel.
Some commentators think Stark's move will embolden rebels in September 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 center-right coalition and she may be forced to call elections.
Former Bundesbanker Edgar Meister attacked Merkel's government for failing to give Stark sufficient support -- echoing criticism she faced after Weber's resignation and also following former President Horst Koehler quit last year.
"The political backing for stability has declined," he said. "Apparently Stark got too little backing from Berlin."
Opposition parties were also quick to blame Merkel.
"This decision is a thunderbolt for the chancellor," said Carsten Schneider, budget spokesman for the Social Democrats, adding the ECB's independence and integrity were buried with the bond buying scheme.
"With Juergen Stark, a further guarantor of the independence of the ECB and the stability of the euro have gone overboard."
Merkel is looking increasingly isolated and rifts are widening within her center-right coalition. Her Bavarian sister party wants to threaten heavily indebted states with ejection from the euro zone, a stance Merkel and Finance Minister Wolfgang Schaeuble oppose.
On top of that, Merkel's team of close advisers is looking depleted. She is set to lose deputy finance minister Joerg Asmussen to replace Stark at the ECB and has already lost Jens Weidmann who took Weber's position at the Bundesbank. The two had effectively been running Germany's crisis management.
(Reporting By Madeline Chambers, editing by Mike Peacock)
- Disruptive Hong Kong protests loom after China rules out democracy |
- Ukraine accuses Russia of 'open aggression' as rebels advance |
- Pakistani protesters clash with police, soldiers secure state TV |
- Europe holds nerve as Russia-Ukraine warnings ratchet up
- Dozens arrested at Made in America music festival in Los Angeles