Institutions are sluggish creatures. They live by a schedule of habitual, well-worn procedures, which does indeed give rise to some confidence in what comes out at the end of the day. Loathing uncertainty, institutions find it tough to keep up with a changing environment. In most cases, changes spur debates about the meaning of the institutions. What are they actually supposed to be doing? This question was also posed by Juergen Stark, who resigned on Friday as chief economist of the European Central Bank (ECB).

The ECB has always been considered a legitimate child of the Bundesbank, dedicated solely to the stability of the currency. What Stark believes will happen if the central bank goes in for buying government bonds from highly indebted countries in a big way is clear. His contrarian stance he sets out as follows: “In the current environment one can assume that positive effects on confidence due to sound fiscal policy are considerable, and this is backed up by case studies that show that ambitious adjustment programmes are, after a short time, associated with positive effects on growth.” By “sound fiscal policy” and “ambitious adjustment programmes” Stark means “to save”, and nothing else.

Translated from the German by Anton Baer

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