The European Central Bank (ECB) will not be used as a tool to clean up government fiscal failures, and anyone expecting that should stop now. That was the clear message from Olaf Sleijpen, the Dutch central bank governor, in an interview published by Het Financieele Dagblad.
Olaf made it known that the Transmission Protection Instrument, a tool designed by the ECB to control severe market disruptions, won’t be used to rescue countries that can’t manage their budgets.
“The instrument exists — it can be used temporarily under certain conditions, but it’s absolutely not intended for certain things,” he said. “So, I think the idea that the ECB will solve it is a bit too simplistic. Some things really should be resolved by politicians themselves.”
Olaf, who took over in July after Klaas Knot stepped down, said he wasn’t interested in being called a hawk or a dove. “Price stability is what I’m paid for,” he said. He pointed out that the ECB has one job—keep inflation under control .
“The ECB simply has a very clear mandate, and that is price stability. That’s the most important thing for me. I will commit myself to a monetary policy that aligns with that.”
When asked if the ECB’s deposit rate would stay at 2%, Olaf didn’t give a yes or no. “There’s a great deal of uncertainty,” he said. He explained that inflation could drop faster than expected if the economy weakens or if the euro gains strength against the dollar.
But higher energy prices are also pushing prices up again. “Furthermore, we don’t yet know to what extent US import tariffs will affect the inflation rate in the long term.”
Olaf questions government tax plans and spending habits
Olaf didn’t stop at monetary policy . He aimed straight at Dutch politicians, making big campaign promises ahead of the October 29 election. “A whopping €85 billion ($99.5 billion) in tax incentives in the Netherlands has proven ineffective,” he said .
He argued that some of that money should be used for actual investments that grow the economy. “A clear and transparent government policy is also crucial for businesses. That costs nothing.” He also questioned the push to exempt public investments from spending rules.
“Even for those investments, a euro is a euro that ultimately has to be repaid,” he said. He warned that calling everything an investment doesn’t make it smart spending. “And who decides what the investments are? We’re familiar with those discussions from the past. Soon, everything will be an investment.”
When asked about using past tools like quantitative easing again, Olaf was cautious. He said the last round of bond buying came with real costs. “The price tag for the ECB’s quantitative-easing program was high when you consider the profits of central banks and the consequences of low interest rates for financial stability,” he said.
And if the main policy rate drops back to zero again, Olaf warned that any similar decision would need to be thought through much more carefully. He made it clear that experience has shown these tools are not to be thrown around lightly.
Inflation readings pile more pressure on ECB rate decisions
This week’s inflation numbers won’t make the ECB’s next move any easier. Analysts expect consumer prices across the euro zone to jump 2.2% year-over-year in September. That’s a rise from 2% in August and would be the highest reading in five months.
Bloomberg surveyed 35 economists, and most agreed that the increase is mainly due to energy and travel prices. It’s the last inflation update the ECB will see before its October 30 decision.
That reading will come after national inflation data from the euro zone’s four biggest economies. Spain goes first on Monday, with price growth expected to reach 3%, up from 2.7% in August. France’s number is due on Tuesday, forecast to rise to 1.3%. Italy’s inflation rate is expected at 1.8%, and Germany’s at 2.2%.
This puts Olaf and the rest of the ECB’s Governing Council in a tight spot. With inflation creeping above their 2% target, no one in Frankfurt wants to be the one who cuts rates too early and loses control.
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