–Bond Buys Limited In Time And Scope; Don’t Overburden The ECB

FRANKFURT (MNI) – Departing European Central Bank chief economist
Juergen Stark said his decision to resign from the ECB was prompted by
dissatisfaction over the direction in which the Eurozone was heading.

Speaking openly for the first time about the real reason for his
resignation, Stark told German magazine WirtschaftsWoche, “I am not
happy with the way this monetary union has developed.” Until that
interview, published over the weekend, Stark had always cited “personal
reasons” for his decision to leave the ECB.

Stark noted that the ECB had warned as early as 2005 that trouble
was brewing in the euro area. While the political authorities possessed
the policy instruments to fix the problems, they failed to do so, he
said.

Expectations that monetary policy can now address these problems
are ill-placed, Stark said. “Don’t overburden the central bank,” he
warned.

In particular, Stark rejected calls on the ECB to step up its bond
buying program.

“It is a key basis of this currency union that monetary financing
of sovereign debt via the ECB is prohibited. Without this rule, the
economic and monetary union would not exist,” Stark said. Bond buys “are
limited in both time and scope,” he stressed. “We can’t enlarge our
balance sheet indefinitely.”

Stark, who will leave the ECB at the end of this year, has always
been a fierce opponent of the ECB’s debt market interventions. He
announced his resignation shortly after the ECB decided in August to
expand the scope of its government bond buys to include debt from Italy
and Spain.

Stark said the agreement by EU leaders on a new “fiscal compact” at
their last summit in Brussels represented “a real breakthrough.” The
deal must now be implemented swiftly, he demanded.

Only a rapid implementation of these decisions, coupled with a
strict fiscal consolidation and reform program in Italy, will allow the
Eurozone’s third largest economy to face up to its massive E370 billion
refinancing need next year, Stark said. “Markets expect a quick fix.”

Stark criticized lagging reform momentum in Greece. Athens “slowed
its reform efforts one year ago. This started with the signal that
Greece could be relieved of a share of its debt,” he asserted. “After
that, the Greek government concentrated solely on that and definitely
let the reforms drag,” he said.

“To now argue that Greece is suffering from a systemic crisis of
Europe is an easy way out for Greece,” Stark added. “You can’t put the
blame on somebody else if you don’t do your own homework.”

–Frankfurt newsroom +49 69 72 01 42; e-mail: jtreeck@marketnews.com

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