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Portfolio > Economy & Markets

German Rift Threatens Euro Zone

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Juergen Stark’s sudden departure from his post at the European Central Bank (ECB) over the issue of buying bonds from troubled euro zone countries has led to wider problems, both in the zone and at home in Germany. His lack of support for Chancellor Angela Merkel’s efforts to call for more financial integration within the euro zone could mean trouble for her as the voices of dissent grow louder. And his departure in the wake of Axel Weber seven months ago, after a similar disagreement with ECB President Jean-Claude Trichet, indicates wider dissent over how the zone’s fiscal woes should be handled.

According to a Reuters report, Stark stepped down abruptly on Friday because he opposed the ECB’s policy of purchasing the bonds of peripheral euro zone countries. He had not been an outspoken critic of the policy, unlike Weber, who publicly disagreed with Trichet on the issue. His departure is seen as concern over the succession of Italian Mario Draghi to Trichet’s position come November, and concern as well that the southern countries in the euro zone could overrule Germany on policy. Merkel and French President Nicolas Sarkozy have been substantial drivers of the policies advocated in recent months to cope with the debt crisis. Draghi’s presidency could change that.

Dissatisfaction at the current state of affairs in Germany has been growing. Edgar Meister, formerly at the Bundesbank, said over the weekend that the ECB’s one-country, one-vote rule should be changed, and that it was “unbelievable” that Germany, after taking on the biggest share of rescue in the crisis, could be outvoted by the central bankers in countries that have been on the receiving end of bailouts or that may be in line to receive one.

Norbert Barthle, a senior lawmaker from Merkel’s Christian Democrats (CDU) who sits on Parliament’s budget committee, was quoted in the report calling Stark’s resignation “a rejection of the policies that the ECB has pursued and a clear signal that the situation in the broader euro zone has reached a really critical point.” Also, a source within the German finance ministry was cited as saying that Berlin was now acting on the assumption that Greece would default.

The German daily Die Welt was quoted saying, “The resignation of Juergen Stark is a devastating signal for Angela Merkel. Life is only going to get more difficult for her.”

A potential replacement for Stark is Joerg Asmussen, a junior finance minister in Germany. Dutch Finance Minister Jan Kees de Jager voiced the country’s support for Asmussen on Sunday, and was quoted saying, “He is experienced in the financial-economic field and knows euro zone and its players inside out. The Dutch government has always had an excellent working relationship with Mr Asmussen and we trust he will continue the work of Mr Stark.”


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