ECB’s Stark resists more bond buys, against "E-bond"

By Josie Cox and Paul Carrel

FRANKFURT/BERLIN (BestGrowthStock) – European Central Bank policymaker Juergen Stark has dismissed calls for the ECB to step up its bond-buying program and rejected the idea of a common European sovereign bond.

Stark, a German, said there was “no currency crisis” in the euro zone but rather a sovereign debt crisis in some countries, adding in a Tuesday newspaper interview that the ECB expected governments to respond by rethinking their budget rules.

The ECB’s bond-buying program has been the focus of its contribution to tackling the debt crisis but has led to a rift within the central bank with German Bundesbank chief Axel Weber, one of the ECB’s most influential policymakers, recently saying it should be scrapped.

When the Suddeutsche Zeitung put it to Stark that politicians were urging the ECB to step up its bond buying, he said: “We are not at a bazaar here. ‘Politicians make demands and the ECB jumps’ — Europe doesn’t work like that.”

“We have a clear separation of responsibilities between governments and the central bank,” he added. “The problems must be tackled at their root, that is to say with state debts that are too high and inadequate structural reforms.”

His rejection of a proposed European sovereign bond echoed comments by German Chancellor Angela Merkel. They also reflected a grassroots concern among Germans that they could be exposed to more risks stemming from weaker euro zone countries, which many regard as having lived beyond their means while Germany has shown more prudence.

Merkel on Monday rejected a call from Eurogroup chairman Jean-Claude Juncker and Italian Finance Minister Giulio Tremonti for the issuance of joint European sovereign bonds, or so-called “E-bonds.

Mass-selling German daily Bild responded to the E-bond idea with a Tuesday headline reading: “EU wants to make euro soft!”

Stark echoed Merkel’s view, telling daily Sueddeutsche Zeitung: “Each country needs to be held responsible for its own debt.”

“We are not experiencing a currency crisis, but a crisis of state financing,” he said.

Stark expected European Union leaders to reconsider their approach to a stable currency union. “What we have heard so far cannot be the last word,” he said.

Differences between euro zone policymakers are making markets uneasy, reinforced on Monday when euro zone ministers took no new steps to quell the crisis.

LACK OF LEADERSHIP

The ECB’s government bond purchases edged up last week, figures on Monday showed, although whether its controversial program has really moved up a gear is unlikely to be clear until next week.

The ECB was continuing to supply banks with as much liquidity as they need, Stark said, adding that demand had nonetheless fallen from more than 800 billion euros during the summer to around 500 billion now.

“The money market is normalizing,” he added. “But there are tensions with sovereign bonds. They could spill over into the real economy.”

Yet Stark, an ex-vice president of the German Bundesbank, said it was up to politicians to tackle the debt crisis.

“It is very clear that the responsibility lies with the governments. We have our mandate, namely price stability.”

Eurogroup chairman Juncker said the idea of euro zone bonds had not been raised at Monday’s meeting of euro zone finance ministers and that the EU debt crisis fund had enough resources to weather the threat of contagion.

Former West German chancellor Helmut Schmidt singled out Juncker and ECB President Jean-Claude Trichet for praise among the bloc’s leaders, but called the Bundesbank “reactionary” and Merkel’s policies “not very clever.

“In general I would say that Europe lacks leaders … who have enough of an overview of national and international issues, and who have sufficient ability to judge things,” he told German business daily Handelsblatt.

(Additional reporting by Dave Graham; editing by Patrick Graham and Susan Fenton)

ECB’s Stark resists more bond buys, against "E-bond"