ECB’s Knot: Inaction on Fiscal Policy Rules Could Hamper Price Stability
9 November 2023
By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Klaas Knot on Thursday said that inaction with regard to fiscal policy rules could unbalance the policy mix and make it more difficult to guarantee price stability.
In a speech at a joint seminar of Bruegel and De Nederlandsche Bank, which he heads, Knot said according to a text provided that budget constraints to ensure sound fiscal policy played a ‘particularly relevant’ role currently, ‘as inflation is still too high and government spending keeps adding to inflationary pressures.’
‘If we do not act, the policy mix may become more unbalanced, making it more difficult to ensure price and macroeconomic stability’, he said.
In contrast to the synchronicity of monetary and fiscal policy following the sovereign debt crisis, he said, 'Today, we see risks of the opposite, with a still accommodative fiscal policy counteracting the efforts of a more restrictive monetary policy.'
‘Sound public finances are another prerequisite for the stability of a monetary union’, he said. ‘Threats to fiscal sustainability could weaken the central bank’s ability to maintain price stability, could spill over from one member state to others, and could trigger financial stability risks.’