De Nederlandsche Bank published a speech by Bas ter Weel arguing that sustainable public debt is a precondition for price stability and financial stability because high debt can limit a central bank's room to tighten policy and can leave governments and financial institutions more exposed to shocks. Speaking at a conference on rising international public debt, he said the euro area is not currently operating under fiscal dominance, citing the European Central Bank's 4.5 percentage point rate increase in 2022 and 2023, the return of inflation to the 2% target, and the stabilising effect of the Transmission Protection Instrument even though it has never been used. The speech said euro area government debt has risen from 73% of gross domestic product at the launch of the euro to more than 90%, and only 11 European Union countries, including the Netherlands, now meet both the 60% debt and 3% deficit reference values. High debt also reduces countries' capacity to absorb economic or geopolitical shocks and strengthens the sovereign-bank nexus through domestic holdings of government bonds and higher bank funding costs in high-debt jurisdictions. Bas ter Weel said the EU's new fiscal rules provide an appropriate framework for bringing debt onto a declining path, but their effect will depend on member states implementing their plans and on consistent enforcement. He warned that proposals to soften the rules, including more flexible treatment of energy measures, would mainly delay the required fiscal adjustment.
De Nederlandsche Bank2026-06-04
De Nederlandsche Bank speech warns high public debt can undermine monetary policy independence and calls for enforcement of new EU fiscal rules
De Nederlandsche Bank published a speech by Bas ter Weel arguing that sustainable public debt is a precondition for price and financial stability, warning that high debt constrains monetary tightening and heightens exposure to shocks. He noted that euro area government debt exceeds 90% of gross domestic product and that only 11 European Union countries meet both the 60% debt and 3% deficit reference values. He said the European Union’s new fiscal rules offer an appropriate framework to put debt on a declining path, but stressed that their effectiveness depends on implementation and enforcement and cautioned that softening the rules would delay necessary fiscal adjustment.