ECB: Knot says we will not hesitate to take action against a debt crisis if necessary (FT)
(Il Sole 24 Ore Radiocor) - "If circumstances require it, we will not hesitate to take action". Klaas Knot, the Dutch candidate for the presidency of the ECB, made this statement to the Financial Times, saying he was prepared to use existing crisis-response tools, including asset purchases, and open to creating new tools to tackle any future crises. If the next crisis were “of a different nature” from those that led to the creation of the current instruments, “I would not even rule out developing another, more tailored instrument”, explained the former governor of the Dutch central bank. Responding to a question about Christine Lagarde’s famous gaffe when, in early 2022, she said that the European Central Bank “is not here to close spreads”, Knot said that the ECB must “certainly be there to contain spreads when they are driven by unjustified and disorderly market dynamics”. Frankfurt already has instruments at its disposal to deal with such situations, including the OMTs, introduced in 2012 following Mario Draghi’s ‘whatever it takes’ statement, and the Transmission Protection Instrument, created in 2022 and never used to date. Any intervention must, however, be carried out “in such a way as not to undermine the institutional credibility” of the central bank, which cannot correct unsustainable fiscal policies. The existing instruments “combine the obligation for governments to put their fundamentals in order with a temporary shield against unjustified or disorderly market dynamics”, observed Knot, describing himself as a long-standing and staunch supporter of this approach. Furthermore, there is no “single magic spread level” that triggers intervention. According to Knot, the ECB has been right so far to remain on the sidelines, because rising public debt costs, on their own, do not justify bond purchases. “There is a difference between a repricing from one level to another and disorderly market dynamics, with high volatility and significant contagion across different markets,” he emphasised.
Knot, who headed the Dutch central bank from 2011 to 2025, has been put forward by The Hague as a candidate to succeed Christine Lagarde. His main rival is Pablo Hernández de Cos, Director-General of the Bank for International Settlements and former Governor of the Bank of Spain, who has been put forward by Madrid.
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