Monday, January 30, 2017

Former ECB hawk: ‘Destroy Eurozone to make Europe thrive

Former ECB executive board member Jürgen Stark / Facebook page InstaForex Česko
Jürgen Stark, who served on the ECB’s executive board during the financial crisis, said it is time to “think the unthinkable. And it is already unthinkable to think about the restart of Europe, which means we have to be creative. But in order to be creative, you have to destruct [sic] something.” In an interview published by The TelegraphStark is critical of the ECB, because:
The ECB talks a lot about structural reforms. It has issued research papers about the effects of structural reforms in the medium to longer term – this has no effect. Policy is not in line with communication. As long as the ECB gives this signal in its operations to the governments that ‘we are the backstop’ and ‘we will prevent country ‘a‘ or country ‘b’ from becoming insolvent’, there will be no structural reforms. The politicians don’t feel the heat.
Continuing his discussion of the core problems of the Eurozone, Stark mentions the “different economic structures,” “different economic performances,” of the various Eurozone countries and how there is no longer convergence, but rather divergence of their economies. After a calm beginning in 1999, followed by the “perfect storm” of 2008, necessary reforms have not been made and nothing has been resolved. Stark’s solution is to ‘reset’ Europe:
less centralisation of politics in certain areas. In this respect, I would say reduce the euro area to the core – and the core is defined as those economies which have a similar production structure, similar economic structure and which are really keen to keep the euro and the economic and monetary union (EMU) together. And this means that others have to find their way – maybe in an extended EMU – to have as the core the euro and the European monetary system [and] have this kind of staggered integration.”
I say the core is France and Germany, and then some smaller countries. So the basis is the old European Economic Community (Belgium, France, Italy, Luxembourg, the Netherlands and Germany), without Italy – plus Austria and Finland.”
Stark went on to point out that countries such as Italy, which has seen its economy stagnate since the crisis, would be better off outside the single currency area. The interview comes a week after the current Bundesbank president, Jens Weidmann, attacked the ECB’s quantitative easing programme, warning that purchasing government bonds risks turning central banks into “prisoners of markets or fiscal policy.