ECB resignation throws markets into turmoil
The shock resignation of the top German official on the board of the European Central Bank (ECB) plunged global stock markets into fresh turmoil yesterday.
The ECB announced that Jürgen Stark, the bank's chief economist, will leave his post for "personal reasons". But Mr Stark was known to have been opposed to the ECB's emergency decision to purchase €50bn (£43bn) of Spanish and Italian sovereign bonds last month.
News of the departure of Mr Stark, whose term at the ECB was not due to end until May 2014, sent a signal to markets that the European policymaking elite remains divided over how to deal with the eurozone sovereign debt crisis. The euro sank to $1.365, the lowest level since February on the news. The German stock exchange closed down more than 4 per cent. The FTSE 100 shed 2.35 per cent, and, in New York, the Dow Jones ended down 303 points, 2.69 per cent, at 10,992.
The president of the ECB, Jean-Claude Trichet, made an emotional defence of the bank's actions through the eurozone sovereign debt crisis at a press conference earlier this week, suggesting that he is feeling under increasing pressure. Mr Stark's resignation also reinforces an impression of growing German alienation from the moves by European leaders in recent months to keep the eurozone from breaking apart.
Mr Stark was not alone on the ECB board in opposing the purchase of Italian and Spanish bonds last month. He is reported to have been joined by the president of the Bundesbank, Jens Weidmann. Mr Weidmann's predecessor at the German central bank, Axel Weber, was also unhappy with the policy. Mr Weber resigned from the ECB board back in April in objection to the purchase of Greek, Irish and Portuguese bonds. Mr Weber had previously been considered a natural successor to Mr Trichet, whose term ends at the end of next month.
The markets had breathed a sigh of relief earlier this week when the German Constitutional Court ruled that the actions of the ECB and the European authorities during this crisis did not breach national law. But the court also ruled that the German parliament must approve any future bailout agreements, throwing a hurdle in the way of further emergency measures to stabilise the eurozone.
Markets were further spooked yesterday by rumours that the Greek government, the weakest of all the eurozone periphery economies, is planning to default on its debts this weekend. This was dismissed as "rubbish" by an official at the Greek finance ministry. But negotiations between Athens and private sector holders of Greek debt to write down the value of these loans have yet to yield fruit. The latest expectation is that only 70 per cent of Greek sovereign bond holders will take part. Yet Greece had threatened to cancel the deal altogether unless 90 per cent of its creditors agree to contribute. There is uncertainty over the Greek austerity drive too. Last week officials from the EU and the International Monetary Fund left Athens ahead of schedule after failing to agree on the scale of spending cuts that Greece will push through next year.
The ECB was forced to buy Spanish and Italian bonds last month because the deal agreed by eurozone leaders in Brussels in July, which would allow a special European fund to perform this function, has still not been ratified by national parliaments. The German Bundestag will vote on the legislation on 29 September. Chancellor Angela Merkel is facing difficulties convincing her own party, the Christian Democrats, to back the legislation.