ECB’s Knot: Economic Cost of Protectionism Could be Very High if Badly Managed

14 February 2025

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Klaas Knot said on Friday that the price to be paid for implementing protectionist policies could be very high if these are poorly managed.

In a speech at the opening of the High Level IMF Constituency Meeting in Amsterdam, Knot, who heads De Nederlandsche Bank, said that ‘[s]trengthening national security and curbing strategic economic risks are logical policies in a world that has become a more dangerous place.’

‘But, if not properly managed, the economic costs of these policies could be very high’, he added.

These costs could be seen in higher prices for imported goods, market fragmentation and a more limited access to technology and knowledge, he said.

Geopolitical fragmentation had ‘real consequences for real people’ and affected everywhere, he said, though the extent of that impact was different depending on the country.

‘Fragmentation impacts not only the real economy and inflation. It also has implications for financial stability’, he said. ‘Weaker growth and higher inflation make it more likely that banks and other financial institutions will incur credit and market losses.’

Lacking smooth and joint responses to global crises as a result of fragmentation ‘could prove to be costly’, he said.

‘That’s because the most important challenges to financial stability that we currently face are precisely the cross-border issues that we can only solve if we work together’, he said.