Speaking at Expert Investor’s Pan-European Congress in Rome on Friday, the former chief economist of the European Central Bank (ECB) said that its present monetary policies were distorting the markets.
He said the interventions were creating a similar environment to 2007 and early 2008 in the US with the Federal Reserve when risks were not properly priced alongside rising interest rates.
Stark was a member of the executive board of the ECB from 2006 until 2011.
Stark said the ECB was aware of the “unintended consequences” that its monetary policies could cause. “In my view, they have already materialised,” he said, referring to risk not being properly priced leading to a market correction.
Stark cited the abrupt change in the United States’ decision to end its quantitative easing policy in February last year and the subsequent rise interest rates. “A similar situation is now happening in Europe,” he said.
The ECB began unwinding its quantitative easing programme earlier this year, reducing its bond purchases to €30bn a month from €60bn and last week it dropped its commitment to expand its bond-buying programme if the current eurozone expansion falters.
“[In Europe we can expect] tapering this year or early 2019 and later on an increase in interest rates,” Stark said. “[As a result] there could be a risk of an abrupt market correction.”
“And [anyone] who argues that there is a risk of an abrupt market correction can’t argue that there are no negative consequences from these policies.”