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Why Markets Are Reacting to ECB Stark Resignation

Stocks in Europe closed on their lows, many big European banks down six to eight percent. The euro is at a six-month low versus the dollar.

The resignation of Juergen Stark, a member of the Executive Board of the ECB, reportedly for personal reasons, serves to highlights the North-South split that is now emerging in the ECB and in Europe as a whole.

For those not up on the internals of the ECB, it is run by a Governing Council consisting of 23 members: six members of the Executive Board, and the governors of the 17 euro area countries. The Executive Board runs the bank's day to day business and is appointed by the heads of government of the eurozone.

Juergen Stark was on the Executive Board of the ECB. Sources at CNBC say he is likely to be replaced by Jorg Asmussen from the German Ministry of Finance.

The reason this is important is that traders believe his resignation is unlikely due to solely personal reasons: the policy differences of the different countries are now being played out. In general, the Germans have been uncomfortable with expanding the ECB's sovereign bond buying program, and are also uncomfortable with the further step of introducing eurobonds. Other northern European countries are also hesitant to take on the debts of their southern neighbors.

Was Stark forced out by German Chancellor Angela Merkel? Not clear.

As for rumors of a Greek default (which the Greek government denies), it is a bit puzzling: traders note they do not have any major payments until next March. However, it is not clear if Greece will satisfy conditions for the next tranche of money they are supposed to be receiving from Europe. One news agency is reporting that German officials are preparing a plan to recapitalize Germany banks is they take a haircut due to their Greek holdings.

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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