Inappropriate fiscal stance hurts ECB’s inflation efforts – ECB’s Knot

European Central Bank (ECB) Governing Council member Klaas Knot has criticised the “inappropriate fiscal stance” within the European Union (EU), arguing that it has hindered the effectiveness of the ECB’s efforts to control inflation.

Speaking at a panel discussion in Rotterdam on Wednesday, the Dutch central banker highlighted the challenge posed by the recent energy crisis, which prompted the ECB to tighten monetary policy while fiscal policy remained “very loose.”

Knot emphasised that the ECB has shouldered “most of the burden of bringing inflation down” and suggested that a more restrictive fiscal policy would have been preferable.

He also pointed out that interest-rate hikes have increased debt-servicing costs, which should have been offset by higher primary fiscal balances.

Additionally, Knot advocated for a more balanced approach between national and European spending, stating that “more spending by the European Union should be accompanied by less fiscal space at the national level,” as the burden ultimately falls on the same taxpayer.

This follows recent comments by ECB President Christine Lagarde, who reiterated the ECB’s strong support for discipline in EU fiscal rules.