ECB’s Knot calls for tighter fiscal policy

The euro slipped today, pressured by escalating recession fears in Germany. The Eurozone’s largest economy confirmed a 0.1% GDP contraction in Q2, with consumer sentiment deteriorating more sharply than anticipated, particularly in economic outlook.

ECB’s Knot urges tighter fiscal measures to aid inflation battle

European Central Bank (ECB) Governing Council member Klaas Knot called for stricter fiscal policies to complement the ECB's efforts in controlling inflation during a panel discussion today. Knot emphasized that while the ECB has largely shouldered the task of reining in inflation, a more restrictive fiscal stance would have been beneficial.

"The burden of bringing inflation down has largely fallen on the ECB," Knot said, adding that "a tighter fiscal policy would have been preferable."

He further highlighted that the rising costs of debt servicing due to interest rate hikes should be counterbalanced by stronger primary fiscal balances. Additionally, Knot stressed the need for aligning increased EU spending with reduced national fiscal flexibility, noting that "ultimately, the national and European taxpayer is the same."

German consumer sentiment drops unexpectedly

Germany's GfK Consumer Climate Indicator fell to -22.0 heading into September 2024, down from a revised -18.6 in the previous period and below market expectations of -18.0. The decline marks the lowest sentiment reading since May, driven by growing concerns over job security, a rise in corporate insolvencies, and broader economic weakness.