FRANKFURT (MNI) – Each Eurozone member state “must vouch for its
own debt,” European Central Bank Executive Board member Juergen Stark
said in an interview with the German daily Sueddeutsche Zeitung,
released Tuesday.

His comment, in response to a question on whether he supported the
idea of a common Eurozone bond, puts him in the camp of the German
government, which has rejected calls from other Eurozone leaders,
including Eurogroup head Jean-Claude Juncker and Italian Finance
Minister Giulio Tremonti, to collectively underwrite a significant
portion of the region’s debt through joint securities.

Thus far, the ECB has said that it has no official position on the
subject, though the bank’s president Jean-Claude Trichet last week left
the door open to the possibility, saying “never say never.” Governing
Council member Ewald Nowotny said last week that the idea merited
further examination.

In the interview, Stark also called on governments to rethink
reforms of the Stability and Growth Pact, warning that in the absence of
stronger action the current crisis will persist.

Stark said that the Eurozone is “definitely not on its way to
becoming a transfer union.” Support extended to Greece and Ireland
consists of loans that are expected to be paid back, he noted,
dismissing market concerns that these loans will not be paid pack in
full.

The ECB’s chief economist also asserted that Europe is not facing a
currency crisis but a sovereign debt crisis of some countries. “This is
why the ECB expects EU political leaders to rethink budget rules for the
currency union again. Current proposals must not be the last word.
Unfortunately, latest market developments have confirmed this,” Stark
said.

In particular, Stark called for more automaticity and earlier
intervention in applying sanctions for countries violating the rules of
the Stability and Growth Pact. “Member states must accept that a
currency union limits the sovereignty of fiscal policies,” he asserted.

“It was an illusion of some politician [to think] that we are out
of the woods. Without concrete, far-reaching government decisions, the
crisis will continue to smoulder,” Stark warned.

He firmly rejected political pressure on the ECB to further
increase government bond buys, arguing that governments must address the
roots causes of today’s crisis — namely government debt and
insufficient structural reforms.

“It is very clearly the responsibility of governments,” he said.

“We have a clear separation between the responsibilities of
governments and those of the central bank. We are not there to finance
government debt and we are not financing government debt,” Stark
asserted.

ECB government bond buys are solely aimed at ensuring that the
ECB’s monetary policy stance is transmitted effectively, he explained.
“It is a monetary policy measure.”

Stark also defended the central bank’s decision to postpone further
exit steps from non-standard liquidity measure last Thursday. He argued
that while money markets are normalizing, tensions in bond markets might
yet spill over into the real economy by undermining confidence of
investors and consumers.

While he understands rising inflation fears, particularly in is
home country, Germany, Stark said that such concerns were not necessary.

He pointed to the ECB’s track record of ensuring price stability
but warned not to complicate the task by overburdening monetary policy.

Stark, who has long been considered a potential successor to Axel
Weber at the helm of the Bundesbank should Weber become the next ECB
president, appeared for the first time to reject that option.

Asked whether he might be interested in the top Bundesbank job,
Stark replied: “My contract runs until my 66th birthday and then there
is a life after the central bank.”

–Frankfurt newsroom +49 69 72 01 42; Email: jtreeck@marketnews.com

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