ECB's Knot Calls for Patience as Low Rates Raise Pension Concern

  • Dutch central-bank head speaks in parliamentary debate
  • Germany has accused ECB of causing ``extraordinary problems''

European Central Bank Governing Council member Klaas Knot called for “patience and reality” over ultra-loose monetary policy as concerns mount over the impact on pensions and savings.

“My proposal is to keep the broad monetary policy in place and then, really, inflation will rise sooner or later,” Knot, who is also the president of the Dutch central bank, told lawmakers in The Hague on Wednesday. “But I can’t tell when that will be.”

Klaas Knot
Klaas Knot
Photographer Jasper Juinen/Bloomberg

Knot, who said he was “among the more critical members” of the Governing Council, addressed members of the Dutch parliament’s finance committee after an invitation to discuss risks related to the the ECB’s 1.74 trillion-euro ($1.98 trillion) asset-purchase program and negative rates. He said that while savings and pensions are hit by ultra-low interest rates, governments and home-loan borrowers benefit.

The ECB has come under attack from politicians, most notably in Germany, since it cut rates in March, added corporate debt to its bond-buying plan and announced a new long-term loan program for banks. The rising tension is exposing Europe’s divisions just as officials head to Washington for meetings of the Group of 20 and International Monetary Fund.

Pension Struggle

Dutch pension funds are struggling to meet their obligations, particularly on fixed-level payouts. Knot suggested that model is probably no longer appropriate and said the system should change to better handle volatility.

German Finance Minister Wolfgang Schaeuble said in an interview published on Tuesday that monetary policy is causing “extraordinary problems” for the nation’s banks and for retirement planning. He said last week that ECB President Mario Draghi should share the blame for the rise of populist political groups.

G-20 officials will probably discuss the impact of monetary policy and whether some central banks are reaching their limit, a Canadian official told reporters on Tuesday, on condition of anonymity.

Even so, ECB policy makers say they must focus on their mandate of price stability, and can add more stimulus if needed. The euro-area inflation rate was minus 0.1 percent last month and hasn’t been at the goal of just under 2 percent in three years.

Knot said last month in the Dutch central bank’s annual report that the ECB is approaching the limits of its monetary policy, and that a further expansion of its asset-purchase program could give rise to legal and financial-stability concerns.

On Wednesday he said the central bank is still operating legally, though he would oppose any proposal to buy bank bonds, citing a conflict of interest with the ECB’s role as a banking regulator. He also said helicopter money, or the direct central-bank financing of fiscal stimulus, lies outside its mandate.

“Within the Governing Council there is a discussion about the effectiveness of the instruments,” he said. The ECB’s remit is broad and policy makers have a “high level of judgment.”

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