The loose budget policies of many euro countries are frustrating the European Central Bank’s efforts to reduce inflation. This was stated by Klaas Knot, Chairman of De Nederlandsche Bank (DNB) and member of the Governing Council of the European Central Bank, during a meeting in Slovakia.
Knott says central banks are facing government budget policies that are “completely out of step” with the economic situation. “There is a reluctance to help stabilize the eurozone economy.”
Central bankers often criticize the financial support that governments provide to households and companies due to high energy prices. The money would have been distributed very widely among the population.
These measures came at the same time that the central bank wanted to ensure less money flowed into the economy by raising interest rates to slow inflation.
Knott’s colleague, Bostjan Vasli, governor of the Slovenian central bank, complained that governments seemed willing to operate with increasingly generous budgets for about four years.
“Eurozone may suffer from recession”
His Slovak counterpart, Peter Casimir, stated that finance ministers at present mainly want to spend money. “I feel that we are missing the generation of ministers from the austerity period,” said Casimir, who was in charge of Slovak finances between 2012 and 2019.
The European Central Bank raised interest rates to record levels over the past year and a half to reduce inflation. These high borrowing costs also affect economic growth. Board member Isabelle Schnabel said in an interview with a Croatian newspaper that she could not rule out that the eurozone would end up in recession as a result.
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