Bubble risk means economic caution: DNB president

In spite of the slow recovery, Eurozone has taken important steps for strengthening of the currency union, wrote Netherlands Central Bank (DNB) president Klaas Knot. However, the emerging growth has to be perceived cautiously in the context of occurring political instabilities and fluctuating market sentiment, Mr Knot warned. Insufficient investment may enhance bubbles risk and undermine financial stability, he argued. He noted that despite structural reforms the ECB had mainly exhausted its available economic instruments. However, the liquidity accumulated as a result of the quantitative easing should also find its ways into investment in real economy. The Netherlands is also receiving returns on hard and, often unpleasant, austerity measures, Knot said. The low interest rate allowed spurring developments in the housing market. It also promoted dynamism in the economy and helped improving consumer sentiment. Still, there is no reason for complacency, he stated. The improvements occur slowly, and many vital measures concerning the labour market and taxation are yet to be undertaken. The DNB president also emphasized the necessity of pension reforms that could adjust the existing model to the changing labour market composition.