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European Indices suffer losses as ECB s Stark resigns over bond buying

Article By: ,  Financial Analyst
September 9, 2011 12:51 PM

European markets fell sharply on Friday to finish the week on a sour note as investor confidence was rattled by news that Juergen Stark had resigned from the ECB allegedly over his disagreement with the Central Banks bond buying programme.

His resignation sends a message of deep divide within the ECB itself, and the problem is this comes at a time when the ECB’s credibility was already being questioned after yesterdays rate decision highlighted that they are likely to do a complete reversal from hiking rates to cutting rates before the end of the year.

The news today escalates investor fears that Europe’s leaders and Central Bankers are far from united in ideology at a time when the markets need to see credible and definitive action to prevent the sovereign debt crisis from sending European economies back into recession.

Stark’s resignation follows a similar move from previous ECB member Axel Weber, also German, who quit the ECB earlier this year and sends a clear message that key German financial figures are strongly against some of the recent measures that the ECB is adopting, including the contentious action to support Italy and Spain by temporarily buying their bonds to prevent yields from rising beyond control.

It is now crucial, both for the ECB and for market confidence, that the European Central Bank and all its members emerge from this news 100% united with clear and credible measures, that convinces the market that Europe’s leaders are serious and completely determined to stop the sovereign debt crisis from escalating and helping to strengthen growth across the region. Half hearted measures upon which certain contingencies are being forgotten, such as the recent move by Italy to amend their original austerity plan, will only continue to see the market questioning the ECB’s credibility.

Stock markets across Europe were already in negative territory for the morning session but it was rumours of Stark’s resignation in the early afternoon that sent markets tumbling further, with the DAX losing over 3.5% at one point.

The banks and the miners took the brunt of the selling, with both sectors losing over 2% on the day. Barclays was the key drag on London trade, with shares falling over 6% on the day, tracking weaker European banks.

ITV was also a key faller, with shares losing 5% after investors reacted to a downgrade in stance on the firm’s shares by investment bank Citigroup. Citigroup cut their share price target to 100p, from 125p.”

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