Stark's Shocking Departure Should Not Affect ECB's Decision Making

The ECB announced in a statement last Friday that Jürgen Stark, after being a member of the Executive Board and Governing Council of the central bank since June 2006, will resign before the end of his term of office on May 31, 2014 due to 'personal reason. It's also stated that Stark will stay in his current position until a successor is appointed. According to the appointment procedure, it will be by the end of this year. The euro slumped after the news, plummeting as much as -1.8% against USD at one point, amid worries about ECB's monetary stance in the future. We believe Stark's resignation would not affect the central bank's future strategies as all decisions will be based on the mandate to maintain price stability across the Eurozone.

Jürgen Stark is known as one of the most hawkish members in the ECB. The market has speculated that his resignation was due to his dissatisfaction to the securities markets program (SMP). In August, German news magazine Der Spiegel said that Stark, as well as Bundesbank President Weidmann, Luxembourg Central Bank head Mersch and Dutch Central Bank head Knot, opposed the resumption of the program after voting against its creation dated back in May 2010. Stark's dissatisfaction probably reached the climax when the ECB decided to broaden the bond purchase program to include Italian and Spanish debts on August 8.

Stark's premature resignation came just 7 months after Axel Weber quitted his position as the President of the Bundesbank and withdrew his candidacy as the ECB President. The event suggested that Germany is increasingly anxious about ECB's ultra accommodative policies as well as the single currency. This has also raised the uncertainty for Germany's participation in future bailout programs.

It's expected that Germany will propose Jörg Asmussen, a deputy finance minister, as the successor of Stark. According to Finance Minister Wolfgang Schäuble, the candidate should favor stability-oriented policy. While Asmussen refused to comment if he would support the SMP, he's known to have studied under former Bundesbank President Axel Weber, a hawk and an opponent to the program.

While a shock, Stark's departre is not expected to affect ECB's decision making. The main decision making body of the ECB is the Governing Council which consists of 6 Executive Board members of the Executive Board and the governors of the national central banks of the 17 Eurozone countries. Each member has and will seek to fulfill the mandate of maintaining price stability across the 17-nation region. ECB's stance to the SMP will remain unchanged with assets being purchase in similar pace as in recent weeks. It may, however, be more difficult for the ECB to cut interest rates as it avoid to deliver a more dovish impression after a hawk has left.