Bloomberg News

Stark Quit Over Dollar Loans, Blanchflower Says: Tom Keene

September 15, 2011

(Adds comment from Stark in the sixth paragraph.)

Sept. 15 (Bloomberg) -- Juergen Stark probably resigned from the European Central Bank’s executive board because he did not want to support the lending of dollars to euro-area banks, according to David Blanchflower.

Stark resigned on Sept. 9 in protest to the Frankfurt-based central bank’s bond purchases, which he said blurred the line between monetary and fiscal policy. The ECB said today it will lend dollars in a series of three-month loans as the region’s debt crisis limits market access to the U.S. currency.

“I would assume Juergen Stark resigned because he knew this was coming and didn’t want to be a part of it,” Blanchflower, a professor at Dartmouth College Tuck School of Business and former member of the Bank of England’s Monetary Policy Committee, said during a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “There had to be something he resigned over and this is it.”

The coordinated action announced today by ECB, Federal Reserve and other central banks “should have happened a while ago” and “the market should treat this in a very positive way,” Blanchflower said today at the Bloomberg Markets 50 Summit in New York, tied to the magazine’s ranking of the 50 most influential leaders in global markets, finance, business and government.

“People like me have been saying this should have happened a while ago but thank goodness they’re doing it,” Blanchflower said. “The talk over the last few days has been when is Greece going to default. This is the final hour and the coordination is a really big positive.”

‘Short Sighted’

The ECB will provide banks with additional liquidity for as long as needed to ensure money markets function, Stark said in a speech in Vienna today. He will remain the ECB’s chief economist until a replacement is found.

“As long as necessary, we will conduct liquidity management designed to ensure functioning money markets,” Stark said. “Our non-standard measures have helped to stabilize the situation for banks and thereby supported the flow of credit in the euro region.”

Stark’s resignation, less than two months before President Jean-Claude Trichet’s term ends, suggests policy makers are increasingly split over the best way to fight Europe’s debt crisis. The ECB last introduced a three-month dollar loan in May 2010 to calm markets roiled by the threat of a Greek default. Some of the measures lawmakers are considering to tackle the crisis are “worryingly short-sighted,” Stark said today.

“They carry the danger of undermining the market mechanism which, with risk premiums on interest rates of fiscally incautious countries’ debt, offers an incentive for stability- oriented budget policies,” Stark said today. “The proposal for euro bonds is especially problematic.”

--Editors: Dave Liedtka, Greg Storey

To contact the reporters on this story: Allison Bennett in New York at; Tom Keene in New York at

To contact the editor responsible for this story: Dave Liedtka at

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