ECB Has ‘Crossed Red Lines’: Juergen Stark
The European Central Bank has "crossed red lines" by overstepping its monetary policy remit and operating in the realms of fiscal policy and politics, former executive board member of the European Central Bank (ECB), Juergen Stark, told CNBC on Monday.
"The red lines have been crossed as far as monetary policy is concerned. The ECB is prepared to operate, to continue to operate, in the fiscal field," said Stark, who resigned early from the ECB amid reports of disagreements over its bond-buying program.
Stark said the ECB should not be enacting programs such as its latest bond-buying scheme, called the OMT (Outright Monetary Transactions), with the aim of helping governments refinance their debt, as high yields on Italian and Spanish bonds are an accurate reflection of the countries' sovereign risk.
"The differentiation in yields is the risk premium the market puts on various assets, which should be exactly what we want… to a large extent, the spreads are justified," Stark said.
Stark added that the ECB's decision to attach conditionality terms to its new bond-buying program, also overstepped its monetary remit.
"If there is a monetary policy issue, then the central bank has no legitimacy and no reason to condition its interventions… Either it is monetary policy or it is quasi-fiscal policy," he said.
Stark added that the ECB's market interventions also reduced the incentive for governments to enact unpopular economic reforms.
"We have seen time-and-again that when the ECB has announced new measures, the enthusiasm for reform faded away in many countries," he said.
Nonetheless, Stark said that some euro zone countries had made "significant progress" towards reforming their economies. "In this respect, Europe in the end will be stronger than it was before the crisis."
Stark is one of several high-profile German members of the ECB who have protested its use of bond-buying programs, with others including current Bundesbank President Jens Weidmann, and ex-Bundesbank President Axel Weber.