FILE PHOTO: ECB board member Klaas Knot appears at a Dutch parliamentary hearing in The Hague, Netherlands September 23, 2019 REUTERS/Eva PlevierFRANKFURT (Reuters) - Europe needs new budget rules so government spending can maintain an oversized role for years to come while monetary policy remains constrained, European Central Bank policymaker Klaas Knot said on Friday.
Instead simply of reinstating the rules, Knot argued for an overhaul of the Stability and Growth Pact as central banks have limited scope for manoeuvre and fiscal policy is more powerful when rates are at or near their effective lower limit.
“As the current low interest rate environment is likely to persist, we need a structurally larger role for fiscal policy in macro-economic stabilization for the foreseeable future,” the head of the Dutch central bank said in a speech.
“Fiscal flexibility is needed and has to be an integral feature of the framework, rather than an all-or-nothing button which may, or may not, be pressed in an emergency,” Knot added.
The new framework needs to improve coordination of national fiscal policies within euro zone, much like the bloc is doing with the New Generation EU Fund, and must have flexibility beyond automatic stabilizers and emergency measures.
Klaas, Eva Plevier FRANKFURT, Klaas Knot
ECB, European Central Bank, New, EU Fund
The Hague, Netherlands, Europe, Dutch