Bloomberg News

ECB’s Stark Says Monetary Policy Cannot Solve Current Crisis

September 24, 2011

(See EXT4 <GO> for more on the European debt crisis.)

Sept. 24 (Bloomberg) -- European Central Bank Executive Board member Juergen Stark warned that central bank emergency measures are the wrong tool to rely on to solve the current crisis.

“It is a fallacy to think that loose monetary policy can solve the large structural problems we are facing,” Stark said, according to the text of a speech delivered in Washington today. “The crisis has demonstrated that a monetary policy aimed at fine-tuning short-term objectives carries serious risk.”

Policy makers are under pressure to prevent Europe’s debt crisis from pushing the global economy into recession and avert a bank credit squeeze. More than $3.4 trillion has been erased from equity values this week, driving global stocks into a bear market and the lowest valuations since March 2009. Central banks around the world have slashed interest rates to record lows and embarked on bond purchase programs, trying to kick-start the economy.

“Monetary policies aimed at fine-tuning short-term objectives also run a serious risk of inducing too much policy forbearance for too long,” said Stark, who resigned from the board of the ECB this month in protest at the central bank’s government purchase program. “Exiting an extraordinary accommodative mode too late can sow the seeds of future imbalances.”

He will remain the ECB’s chief economist until a replacement is found. Stark reiterated that central bank independence is paramount for its policies to be effective.

“If a central bank comes under pressure in times of crisis, and succumbs to that pressure, it is very unlikely to exit from such extraordinary measures in a timely manner,” he said. “This may unanchor inflation expectations and thus undermine the effectiveness of the measures implemented during the crisis.”

Stark also called on Europe’s leaders to strengthen economic governance in the region and said that current plans “do not go far enough.”

--Editors: Anthony Aarons, Alex Devine

To contact the reporters on this story: Gabi Thesing in Washington at;

To contact the editor responsible for this story: Craig Stirling at

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