Officially, member of the ECB’s executive board Jürgen Stark has decided to quit his position prematurely for “personal reasons” (mentioned twice in the brief press release). This can, of course, cover a lot, but does not exclude what is on most people’s mind: He is quitting because he is in opposition to ECB’s actions on the European bond market. Like his fellow contryman, German Axel Weber, he has obviously not been pleased by the ECB’s slow but steadily increasing involvement in fiscal affairs. It is well known that decisions to purchase sovereign debt in the secondary market (which just about makes it constitutionally legal), have not been unanimous, and although a secret, many have guessed that Jürgen Stark has been one of those voting against.
So, as Weber did before him, Stark is now leaving the ECB. Irrespective of what you think of the man’s political stands (he is known to be quite a hardliner when it comes to monetary policy), his decision shows a lot of personal integrity. He has been against the bond purchases, and as I have written several times on this blog (e.g., here and here where his former colleague, and fellow countryman, Otmar Issing’s critique is mentioned), the Securities Markets Programme cannot in any way be seen as being in conformity with the intentions of the Treaty of the European Union. So, with the risk of generalizing, there seems to be something about Germans: They take treaties seriously.
Therefore, they cannot participate in the workings of an organization which slowly is undermining its own constitutional foundation. That is the way to act! It is a clear signal saying that in these days and times, we do not need rules and regulations to be taken lightly.
I would say, IF you want to purchase government bonds, then change the constitution and go “all in” (bad sports metaphor apology extended). For example, as suggested by Charles Wyplosz, the ECB could promise to guarantee all public debt in the Euro zone. Then, the ECB would be a de facto and de jure lender of last resort. That would be clear and understandable. Now we are in a messy situation where the ECB is performing relatively small interventions based on a lot of fuzzy talk about securing the monetary transmission mechanism so they can fulfill their inflation target!
I am, however, not so sure about the lender of last resort solution. While it could definitely bring current rates down for some countries, I believe the moral hazard problems would become too severe (and as the EMU grows, they grow bigger and bigger). So I would prefer that the ECB lived up to the intentions of the Treaty, and concentrated on doing monetary policy independent of politicians’ desires. I guess it is something like that Jürgen Stark had in mind as well.
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