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European policymakers split on stimulus plans

By Gabi Thesing and Jeff Black | China Daily | Updated: 2011-09-13 07:44

FRANKFURT - Mario Draghi may find it harder to keep the European Central Bank (ECB) in the vanguard of the battle against the eurozone's debt crisis after ECB executive board member Juergen Stark resigned in protest at the bank's bond purchases.

With speculation of a Greek default heaping pressure on the ECB to step up its bond buying and reverse interest rate increases to ease market tensions, Stark's shock move has publicly exposed a rift among policymakers that may undermine its ability to act quickly, economists said. German opposition to further ECB stimulus may also make Draghi less inclined to ease policy when he takes over from ECB President Jean-Claude Trichet on Nov 1, said Marco Valli, chief eurozone economist at UniCredit Group in Milan.

"It would be very easy for Germans to say here comes the Italian, he'll cut rates and buy government bonds in massive amounts," Valli said. Draghi "will probably prefer to err on the side of hawkishness on standard measures, which means he may be reluctant to go for a rate cut".

European policymakers split on stimulus plans

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