Stocks dive as departure of Stark at ECB exposes major rift
Divisions hinge on bank's buying of distressed periphery bonds
Published 10/09/2011 | 05:00
SHARES across the world tumbled yesterday, as the surprise resignation of the top economist at the European Central Bank (ECB) sparked a wave of selling.
Markets slumped after the ECB confirmed its chief economist and board member Jurgen Stark was to step down at the end of the year.
The official reason given for Mr Stark's resignation was "personal reasons", but he apparently quit in protest at the ECB's policy of buying eurozone government bonds to combat the currency bloc's debt crisis.
His resignation, combined with deepening concerns about Greece's ability to pay its debts, sent markets into a tailspin.
By close in Europe, national benchmark indices had retreated across the continent. Germany's DAX slid 4pc, while the UK's FTSE 100 dropped 2.4pc.
France's CAC 40 Index fell 3.6pc, while the ISEQ in Dublin closed down 3.17pc. By late afternoon in New York, the S&P 500 was 2.6pc, while the Dow Jones Industrial Average had tumbled 2.8pc.
Mr Stark's resignation laid bare the rift inside the central bank over the handling of the worsening debt crisis and could undermine German public support for the euro.
He is the second German to resign from the ECB board this year. Former Bundesbank president Axel Weber, who had been the frontrunner to succeed ECB president Jean-Claude Trichet when he retires at the end of next month, resigned and withdrew from the race in February in protest at the same policy, which critics see as improperly monetising government debt.
ECB bond-buying has arrested bond market contagion to Italy and Spain that threatened to overwhelm the eurozone's defences in early August, buying governments time to work on political solutions to the worst crisis in the single currency's history.
Mr Stark's departure, almost three years before his term is due to expire in May 2014, may deepen the gulf between the ECB, which manages the currency of the 17-nation euro area, and German guardians of central banking orthodoxy.
German Deputy Finance Minister Joerg Asmussen, a civil servant who has been at the heart of financial crisis management, is expected to replace Mr Stark on the ECB's executive board.
Manfred Neumann, emeritus economics professor at Bonn University and former thesis adviser to Bundesbank chief Jens Weidmann, said: "The Germans clearly have a problem with the direction of the ECB."
Mr Trichet made an emotional defence of the bank's performance against German criticism at a news conference on Thursday, angrily telling a questioner that the ECB's record of fighting inflation in Germany over the last 12 years had been better than the Bundesbank's.
Mr Stark was said to be one of four members of the ECB's policymaking governing council who voted against last month's controversial decision to revive the dormant bond-buying programme and start buying Italian and Spanish debt after the two countries' borrowing costs ballooned amid market fever.
Meanwhile, traders seemed to be treating a Greek default as a near certainty last night, with the yield on two-year debt passing a record 57pc. Credit-default swaps signalled a 94pc probability Greece will default. (Additional reporting by Reuters)