Sunday, September 11, 2011

Why Jürgen Stark resigning from the ECB might be good news for Spain

Traditionally, France and Germany have run the ECB for their own benefit, and as long as there wasn’t a total consensus on the other side, they would get their own way. However, numerically Germany, Austria, France, Holland and Luxemburg (and hard currency advocate Finland) only have 10 out of 21 votes. Thus, if everyone else (currently Ireland, Spain, Italy, Cyprus, Portugal, Slovenia and Slovakia) agrees… well, Germany could be in for a rude awakening…

My interpretation is that the ECB is about to start doing things that Stark finds absolutely unacceptable, which means that the ECB is likely to continue to support the periphery debt, probably even more aggressively. ie Good news for Spain.

Interestingly enough, his replacement is a banker who was on the board of one of the larger German bank failures in 2008. If I had a to take a guess, given the choice between forcing a massive recapitalization of German banks (wiping out his banker friends) and having the ECB keep the PIIGS afloat, he would choose the latter.

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