Some fascinating analysis from Citi's Willem Buiter:
"Stark’s resignation follows the earlier resignation of the President of the Bundesbank, Axel Weber, also in protest at the ECB’s sovereign debt purchases under the SMP, and the continued open dissent of his successor as Bundesbank President, Jens Weidmann, from these purchases. Jörg Asmussen, German Finance Minister Schaeuble’s nominee to succeed Stark as ECB Executive Board member, currently state secretary at the German finance ministry and a member of the German opposition centre-left Social Democrats (SPD), is unlikely to have views on the SMP that differ much in substance from those of Stark, Weber and Weidmann. These are German views, not just Bundesbank views. Admittedly, the German political leadership dislikes taking a direct fiscal exposure to the periphery sovereigns – through the Greek loan facility, the EFSF and the EFSM, or through Ebond issuance – even more than it dislikes the ECB/Eurosystem taking a quasifiscal exposure to the periphery. Mrs. Merkel would rather see the ECB use the SMP for additional periphery sovereign debt purchases than face the prospect of having to seek parliamentary permission for a further increase in the size of the EFSF or for E-bond issuance. Both of these explicitly fiscal options have also been made more difficult by the recent ruling of the German Constitutional Court on the constitutionality of German involvement in the Greek Loan Facility and the EFSF.
The breakdown on September 2 of the negotiations between the Troika (European Commission, ECB and IMF) and the Greek government on additional austerity and structural reform to make up for the earlier Greek failures to meet the conditionality of the Greek stabilisation programme is worrying. It is true that the Press Release by the Troika on September 2 said that “The mission expects to return to Athens by mid-September, when we expect the Greek authorities to have completed the technical work, to continue discussions on policies needed to complete the review.”, but the palpable mutual distrust and continued brinkmanship engaged in by both sides could easily result in an outcome neither side wants. Although still unlikely, a Greek exit from the euro area now is less unlikely than it was even a few weeks ago."
