Foreign analysis: Top banker’s exit a blow for Merkel’s debt crisis strategy

The surprise exit of Germany’s top official at the European Central Bank has ripped a hole in Chancellor Angela Merkel’s strategy of tackling Europe’s debt crisis with closer integration, raising new doubts about the euro project at home and widening divisions in her party and coalition.

Juergen Stark’s premature departure from the bank because of his opposition to its controversial bond-buying programme was described by German policymakers and editorial writers as a “wake-up call” for Germany.

It comes roughly seven months after Axel Weber, another monetary hawk, abruptly resigned his post as head of the Bundesbank and withdrew his candidacy for the top post at the ECB.

That decision shocked the German policy establishment, but at the time many saw it as a one-off move by an impulsive man who had clashed loudly and publicly with president Jean-Claude Trichet over the extraordinary measures taken by the ECB to safeguard the single currency.

The resignation of Mr Stark tells a very different story, and has unleashed a wave of anxiety across Germany about the direction of the euro currency bloc. Taken together, the departures are seen by many as indications of a southern European takeover of the ECB’s policy-setting council.

Former Bundesbanker Edgar Meister called at the weekend for changes to the ECB’s one-country, one-vote rule, saying it was “unbelievable” that a country such as Germany that was shouldering the biggest burden in the crisis could be overruled by central bankers from smaller countries that have already been rescued or are at risk of a bailout.

Norbert Barthle, a senior MP from Mrs Merkel’s Christian Democrats who sits on parliament’s budget committee, said that Mr Stark’s exit was “a rejection of the policies that the ECB has pursued and a clear signal that the situation in the broader eurozone has reached a really critical point”.

The implications for Mrs Merkel are profound. Criticised for focusing too much on domestic politics and failing to provide clear leadership in the bloc, she shifted her approach this summer and began demanding “more Europe” as the solution to the bloc’s deepening crisis. She made clear last week that changes to the EU’s Lisbon Treaty to bring about closer fiscal integration between the eurozone’s 17 member states should no longer be taboo.

After Mr Stark’s resignation, the domestic hurdles to that goal have risen substantially.

Mrs Merkel received a boost last week when the Consti- tutional Court rejected lawsuits seeking to retroactively block Berlin’s participation in bailouts of Greece, Ireland and Portugal. But after Mr Stark, her drive to secure a conservative majority in parliament for a bigger, bolder eurozone rescue facility on 29 September may have become more difficult again.

Mrs Merkel still seems likely to deliver that, but subsequent Bundestag votes on a second aid package for Greece and the launch of a permanent bailout fund – the European Stability Mechanism – present a huge challenge to her leadership.

The Free Democrats, junior partners in her ruling coalition, are considering asking their 66,000 members whether to support the ESM. If a majority vote against, the leadership will be obliged to adopt that position as FDP policy.

Mrs Merkel’s other coalition partner, the Bavarian Christian Social Union, is also agitating – to boot Greece out of the eurozone entirely.