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By Madeline Chambers
BERLIN, Sept 10 Germans expressed shock and
dread about the direction of euro zone policy on Saturday after
their top official at the European Central Bank resigned in a
conflict over the bank's response to the debt crisis.
The resignation of ECB chief economist Juergen Stark, a
member of Angela Merkel's conservatives, is also a major blow to
the Chancellor who has been deserted by several top allies and
this month faces a vote on expanding the euro zone bailout fund
which could even cost her job.
"The end of the ECB as we knew it," a headline in the
Financial Times Deutschland stated baldly.
"Now it is over once and for all. The phase in the history
of the ECB which was moulded by the Bundesbank," wrote
commentator Wolfgang Proissl.
Germans, whose sacred Bundesbank was a model for the ECB and
whose strong economy has underpinned the euro zone since it was
created, fear they have lost the argument for stability to
southern nations, who they view as financially irresponsible.
Those worries have been compounded by the fact Frenchman
Jean-Claude Trichet will be replaced at the helm of the ECB by
an Italian, Mario Draghi, in November.
Above all, there is anger about the ECB's decision to buy
Greek, Portuguese, Irish and now Italian and Spanish bonds to
help tackle the debt crisis, a move Merkel tacitly approved of.
That was the main reason Stark, known as a hawk at the ECB,
quit, sources said. Former Bundesbank President Axel Weber, who
had been front runner to succeed Trichet at the ECB, resigned in
protest at the same policy in February.
"It is a position that all the Germans have. This is a sign
of huge problems within the central bank. The Germans clearly
have a problem with the direction of the ECB." said Manfred
Neumann, emeritus economics professor at Bonn University and
former thesis adviser to Bundesbank chief Jens Weidmann.
Germans worry the policy is part of a shift to a "transfer
union" and goes against the original treaty which forbids euro
zone states from taking on the debts of other members.
One visceral comment in the Frankfurter Allgemeine Zeitung
accused the ECB of acting on bond markets to save failed
governments and Italy, which refused to cut spending.
"By buying government bonds, the ECB was itself helping to
turn monetary union into a debt community with unlimited
liability," said the paper in a leader. It also described a
hardening of northern and southern camps in the ECB and accused
southern states of "switching on the printing presses to iron
out the shortcomings of fiscal policy".
In a reflection of just how worried Germans are, even German
President Christian Wulff criticised the ECB's bond buying in an
unusual foray into financial policy last month.
A poll for broadcaster ZDF this week showed that 76 percent
of Germans opposed expanding the euro zone's bailout fund.
DANGER FOR MERKEL
All this could be very dangerous for Merkel.
Some commentators think Stark's move will embolden rebels in
Sept. 29's vote on the European Financial Stability Facility
Although Merkel will win the vote because opposition parties
support the planned law, her authority would be badly damaged if
she fails to secure a majority from within her own centre-right
coalition and she may be forced to call elections.
Former Bundesbanker Edgar Meister attacked Merkel's
government for failing to give Stark sufficient support --
echoing criticism she faced after Weber's resignation and also
following former President Horst Koehler quit last year.
"The political backing for stability has declined," he said.
"Apparently Stark got too little backing from Berlin."
Opposition parties were also quick to blame Merkel.
"This decision is a thunderbolt for the chancellor," said
Carsten Schneider, budget spokesman for the Social Democrats,
adding the ECB's independence and integrity were buried with the
bond buying scheme.
"With Juergen Stark, a further guarantor of the independence
of the ECB and the stability of the euro have gone overboard."
Merkel is looking increasingly isolated and rifts are
widening within her centre-right coalition. Her Bavarian sister
party wants to threaten heavily indebted states with ejection
from the euro zone, a stance Merkel and Finance Minister
Wolfgang Schaeuble oppose .
On top of that, Merkel's team of close advisers is looking
depleted. She is set to lose deputy finance minister Joerg
Asmussen to replace Stark at the ECB and has already lost Jens
Weidmann who took Weber's position at the Bundesbank. The two
had effectively been running Germany's crisis management.
(Reporting By Madeline Chambers, editing by Mike Peacock)