LONDON — World markets plunged Friday as investors began to lose confidence over Europe’s ability to manage its heightening debt crisis after a top board member of the European Central Bank resigned unexpectedly and fear grew that Greece would default on its debt.
The resignation by Juergen Stark immediately rattled European markets and the euro, which slipped to a six-month low against the dollar. By market close, stocks had plunged. The European Stoxx index and German DAX indexes had plummeted 4 percent. France’s CAC closed down 3.6 percent.
U.S. markets also spiraled, reflecting concerns about economic instability in Europe that appeared to outweigh reaction to the job creation plan President Obama unveiled in a Thursday night speech before Congress. By late afternoon, the Dow Jones industrial average and the Standard and Poor’s and Nasdaq indexes were all down about 3 percent.
A German hawk on the ECB board, Stark, 63, who effectively doubled as the bank’s chief economist for more than five years, stepped down citing “personal reasons,” according to a short statement issued by the bank. But reports out of Frankfurt indicated that Stark was bitterly at odds with the ECB’s aggressive program to aid troubled members of the euro zone — particularly Italy and Spain — by buying up tens of billions of dollars’ worth of hard-hit government bonds.
The sense of disarray in the euro area drew fire Friday from Group of Seven finance chiefs meeting in Marseille, France, Bloomberg reported. U.S. Treasury Secretary Timothy F. Geithner pushed European authorities “to do whatever they can do to calm these pressures. They have to demonstrate they have enough political will.”
Also Friday, German Chancellor Angela Merkel made her most explicit call yet to bind the European Union closer together to keep the euro stable, calling on the EU to amend its governing treaties and move toward a more common economic policy, Bloomberg reported.
“If the world changes, you have to be ready at all times to make the required changes in such a union,” Merkel said at a policy forum in Berlin. Merkel didn’t make specific proposals or say what steps might be required.
Bloomberg reported later that three coalition officials said Germany had set plans to shore up the nation’s banks in the event Greece defaults.
Analysts said another German economist, Deputy Finance Minister Joerg Asmussen, was a leading candidate to succeed Stark.
“They are replacing one hawk with another hawk,” said Simon White, a partner with London-based Variant Perception. But White said it was unclear whether Asmussen, if tapped, would continue to oppose the bond-buying program.
Germany, the largest economy in the 17-nation euro zone, has become increasingly hesitant about its role in the bailouts as angry taxpayers have been forced to bear the highest burden of the rescues.
The resignation underscored the sharply divided nature of the campaign to bolster Italy in particular and prevent a full-blown debt crisis in the euro zone’s third-largest economy. Such a crisis could defy Europe’s ability to bail out Italy and lead to a break-up of the euro zone. Euro zone leaders are continuing talks on an expanded bailout package for Greece, which has been hampered by Finland’s demand for collateral in exchange for the loans.
The ECB has sought to ease investor pressure on Italy, driving down the nation’s borrowing costs through massive bond purchases. But it’s unclear how long the bank can keep spending such vast sums, and some critics have said that if the bond-buying program goes on too long it could fuel inflation in Europe and threaten the euro’s stability.