ECB’s Knot: Will Take Decades in Some Countries to Reduce Debt
31 August 2021
By David Barwick – FRANKFURT (Econostream) – The high debt of some countries will require the effort of decades to be reduced, European Central Bank Governing Council member Klaas Knot said Tuesday.
During a panel discussion at the European Forum Alpbach, Knot said, ‘It’ll take many decades in some countries to take down debt levels.’
The proper motor to drive debt reduction is productivity growth, he said, calling this ‘the only source of lasting prosperity’.
‘What we have to worry about much more is structural growth, potential growth, at this moment’, he said.
In the context of the panel’s chief topic - arguments for and against Eurozone membership - Knot said that ‘[a]t the end of the day what we strive for is exchange rate stability. … It is all about exchange rate stability vis à vis our main trading partners … that’s the thing we all strive for.’
Although membership in monetary union involves the loss of monetary sovereignty, ‘inside the monetary union at least you have a seat at the table’, he said.
The need to deal with capital flows among countries within the union, reflected in the context of the euro area in the so-called Target 2 balances, cannot be avoided simply by forgoing membership and still striving for exchange rate stability, he observed.
‘If you’re outside the monetary union, you also have to deal with these capital flows’, he said.
‘I fail to see any economic benefits from staying outside if you want to achieve the same amount of exchange rate stability’, he said.