ECB's Juergen Stark Warns Of "Clear Risk Of Sovereign Debt Crisis," Cautions Recovery Largely Due To Massive Support By Governments And Central Banks

Tyler Durden's picture

The ECB's executive board member Juergen Stark had a rare admission (and even rarer for a central banker demonstration of rationality) that not only are most advanced economies about to enter a "third wave, a sovereign debt crisis in most advanced economies", not only is a "timely exit of extraordinary fiscal measures crucial in order to ensure a continued recovery",  but that the mentioned recovery and economic improvements are largely as a result of "massive support measures taken by governments and central banks." In other words, the whole episode of the past year has been a one-time item which most analysts would exclude from "recurring operations" yet due to the magic of the Keynesian magic wand, the new normal is expected to persists as the magical "consumer" at some point takes over the recovery from the government effort. Alas, while the economy has indeed stabilized (effect), the cause continues to be purely based on governmental actions, as the consumer, and the private sector in general, continues retrenching. Too bad the US Federal Reserve has no aerobic critters than can formulate the same critical thoughts as Mr. Stark, or else they would realize that the path they are leading the US on is pure disaster, and furthermore, with the lessons from the last bubble fresh in everyone's mind, doing all they can to be branded mad, at least according to the Einsteinian definition of insanity: let's just keep flooding the system with money and keep hoping that something will change. In retrospect, pleading insanity in a decade when the entire western world is in ruins, before a tribunal of the people may not have quite the desired effect.

From Market News:

Speaking at a debate in Brussels, the central bank's chief
economist said that though it was right to take extraordinary fiscal
policy measures to avoid a depression, a timely exit is now crucial in
order to ensure a continued recovery.

The crisis began as a financial crisis and evolved into an economic
one, Stark observed. Now, there is a "clear risk that we will enter a
third wave, a sovereign debt crisis in most advanced economies."

Many Eurozone countries "are faced with large budget deficits and
sharply rising public debt levels," he added.

Taking from the future of the middle class and giving to the present of the kleptocratic class has never felt so good.

Such improvements are "largely" a result of "massive support
measures taken by governments and central banks
," he said. "Likewise, we
have recently seen further improvements in the outlook for the global
economy."

But, "uncertainty is still high, as both fiscal stimuli and the
inventory cycle, which are currently supporting growth in many
countries, are transitory and as there remain risks to the financial
sector," he warned.

Could Stark be the ECB's equivalent to Hoenig: the only partially sane voices in the lunatic asylum?

On the subject of ECB monetary policy, Stark reaffirmed that "the
Governing Council views the current low level of its key interest rates
as appropriate." The bank's non-standard liquidity-providing measures
"have helped to improve financing conditions, especially in the money
market, thus contributing to a better flow of credit to households and
firms than would otherwise have been the case," he said.

But it is important to ensure that these measures do not stay in
place longer than necessary, the ECB's chief economist argued, outlining
that the bank will continue to implement a gradual exit from these
measures.

Alas, the answer is no:

Yet, he promised that the ECB "will avoid too early an exit from
its non-standard measures, as this would risk hurting the normalization
of financial markets and the recovery."

Same old song and dance, just a different cast of characters. Pander to the people, yet do all that the true overlords, the bankers, demand.