Executive board member Juergen Stark, who announced his surprise resignation from the ECB earlier this year, said disagreements over the central bank’s bond-buying programme was behind his decision.
In an interview with German weekly WirtschaftsWoche to be published on Tuesday, Mr Stark said he did not agree with the way the euro crisis has been handled. He particularly criticised the use of monetary measures, or the wholesale purchase of sovereign bonds by the bank, to contain the crisis.
The statement is in contrast to what the Bank said in September to explain his surprise resignation, which was put down to “personal reasons”.
In the interview he said: “It is the fundamental arrangement of this currency union that it does not allow the monetary funding of sovereign debt by the ECB. Without these rules, there would be no economic and currency union.”
So far the ECB has bought €210bn (£176bn) of state debt. The controversial move has been supported by the UK, France and the USA, but opposed by Germany. The reasons behind Mr Stark’s resignation go some way to revealing how deep the opposition to monetary intervention runs.
“This instrument is limited in terms of the timeframe and volume,” Mr Stark said. “We cannot indefinitely expand our balance sheet.”
Mr Stark is not the only economist to oppose buying national debt. Four members of the ECB voted against the recent revival of the programme.
In February, the head of Germany’s central bank, Axel Weber, quit the race to become the ECB’s next president because of the bank’s policy of buying government debt.
Mr Stark said that instead of relying on the ECB to bail them out, governments need to implement urgent fiscal and structural reforms. “The swift implementation of the December 9, Brussels summit decisions is crucial,” he said in the interview. “Italy has high refinancing needs, but these must be shouldered. Italy must create the basis for this itself with a comprehensive programme of reforms and consolidation measures.”
The warning came as ratings agency Fitch put more pressure on the euro, warning of downgrades on Spain, Italy, Belgium, Slovenia, Ireland and Cyprus. Although it affirmed France’s AAA rating, it put the country on negative outlook.
Fitch said it considered a solution to the crisis gripping the eurozone was now “technically and politically beyond reach”. Separately, Moody’s downgraded Belgium’s debt by two notches to Aa3.
Moody’s and Fitch made the moves after the markets closed on Friday. They are likely to lead to more volatile trading on Monday morning.
The prospects of downgrades of eurozone debt and the UK’s veto of the December 9 agreement has raised tensions among member states. Last week, the French finance minister, Francois Baroin, and Christian Noyer, head of the French Central Bank, said the UK should be ahead of France in terms of a downgrade.
The argument was refuted by Andrew Tyrie, head of the Treasury Select Committee. Speaking to The Sunday Telegraph, he said: “Countries, as ever, compete with one another in the debt markets and the UK is a somewhat better proposition than a number of other eurozone countries.” He cited the UK’s deficit reduction programme, flexible labour market and ability to depreciate the currency as reasons UK debt remained attractive.
However, he added: “It’s the immediate crisis that must be addressed. That means a credible plan for the bond markets on the risks of sovereign insolvency.
“Institutional reform may or may not help for the longer term, but it won’t alleviate the immediate crisis. If not addressed, it has the potential to provoke a crisis of Western capitalism.”
