Knot open to new ECB tools to fight debt crises

Klaas Knot, the Dutch nominee to succeed Christine Lagarde as president of the European Central Bank, said the ECB "won't hesitate" to act if a sovereign debt crisis hits the euro area. He added that he would be willing to design new crisis-fighting tools if the existing ones did not fit the problem, according to the Financial Times. The interview was published Monday, November 9, as euro-zone finance ministers met in Brussels for a first look at the two-candidate race, Bloomberg reported.ft.com+1

Ready to build a new instrument

The interview took place on November 6, according to the FT's edited transcript. In it, Knot said the ECB "may not be there to close spreads, but it should definitely be there to contain them when driven by unwarranted and disorderly market dynamics." He listed the ECB's current tools as Outright Monetary Transactions, flexibility under the pandemic emergency purchase programme (PEPP) and the Transmission Protection Instrument. He said that if a crisis "is different in nature," he "wouldn't even exclude the fact that we would design another more tailor-made tool." When asked whether the existing tools were enough, he said: "If circumstances so dictate, we won't hesitate."ft.com

Knot also set limits. He said there is "no magic single spread level" that would trigger intervention. He added that a "repricing from one level to another" is not the same as disorderly market moves marked by heavy volatility and contagion. Il Sole 24 Ore noted that he described rising public borrowing costs alone as no reason for bond purchases. La Repubblica reported that Knot saw no need for asset purchases at present but did not rule them out.repubblica.it+1

Hawk image softened

Knot called himself a "continuity candidate." He said that if energy prices hold steady, "there may be a bit of extra tightening needed, but I don't think an awful lot of it," Econostream reported. He warned that holding back on rate moves to shield government finances would backfire: "Toying with our inflation objective is not an alternative." The FT's Chris Giles said on the FT News Briefing that Knot appeared to be trying to appeal to southern Europeans and to distance himself from his reputation as a hawk.econostream-media.com+1

A two-way race

Lagarde will step down in February, nine months earlier than planned. Knot's only rival is Pablo Hernández de Cos, the former governor of the Bank of Spain, according to the FT podcast. Dutch Finance Minister Eelco Heinen said the choice must be based on merit rather than "trading of favours," RTÉ reported. Spain's economy minister, Carlos Cuerpo, called Hernández de Cos a "perfect" candidate, Demócrata reported. Eurogroup President Kyriakos Pierrakakis said no immediate decision is expected, since heads of state and government traditionally steer the final choice.rte.ie+2