Outgoing ECB economist calls for drastic reforms

BERLIN: European Central Bank chief economist Juergen Stark called for drastic reforms to strengthen economic governance of the eurozone, hours after resigning abruptly on Friday.

A "quantum leap" is necessary "at the European level" to reinforce its institutions, Stark wrote in a commentary, excerpts of which were released by the German daily Handelsblatt ahead of its publication on Monday.

"A large reform of decision-making mechanisms and sanctions" is necessary in order to secure in the future effective coordination of economic and fiscal policies of the eurozone countries, he added.

"We find ourselves in a situation where risks to public budgets undermine financial stability," wrote Stark.

In a short statement, the ECB said Friday that Stark, 63, had decided to resign "for personal reasons" before the end of his term of office in May 2014.

The announcement sent European stock markets into a tailspin, with the euro falling below $1.37 for the first time since February.

ECB watchers, however, suggested Stark's departure could point to deeper differences among EU and eurozone policy makers over the way out of the current debt crisis.

Stark has been critical of the bank's controversial programme of buying bonds of eurozone countries who find themselves unable to affordably borrow on the markets.

The ECB resumed its bond-buying programme last month when investors fled Italian and Spanish bonds, buying tens of billions of euros in eurozone debt.

A day after US President Barack Obama unveiled a $447 billion (322-billion-euro) jobs plan to energise the world's largest economy, Stark came out against any similar measures in Europe.

Given the concern over the high debt levels of eurozone countries, any policies which result in new public spending would be counterproductive, he argued.

"A fiscal stimulus would do nothing but increase debt levels and therefore increase risks further," wrote Stark.

He instead called for sound fiscal policies that would restore investors confidence in the the eurozone.

Copyright AFP (Agence France-Presse), 2011