Dutch central bank head says ECB should not intervene to settle stock market instability

The European Central Bank (ECB) does not yet need to take action to stabilize the financial markets. The president of De Nederlandsche Bank (DNB), the Dutch Central Bank, Klaas Knot, said on Wednesday morning during a conference with economists in Amsterdam.

Despite a severe shock on the stock market “this is all absorbed, and the market is continuing to function,” Knot, who is also one of the police makers at the ECB in Frankfurt, said. “Of course, I cannot guarantee anything. While we are speaking, the market is moving again, and the more it moves, the harder it can become for some parties.”

During previous moments of market unrest over the years it has occurred that central banks took action in order to stabilize the markets and maintain its function. “That has not happened yet at this time.”

According to Knot, the difference with moments of unrest in the past is that the important parties on the financial markets, for example the hedge fund sector, seem to be much better prepared this time.

Knot called the shifts currently taking place in geopolitics "undoubtedly tectonic in nature." He spoke of a "stagflation-causing shock.” This would be a situation in which inflation rises and economic growth slows. "Of course, it depends crucially on how much retaliation there will be, how strict, for example, the European Commission will be on dumping from other parts of the world, whether that will happen or not. But it is likely that as time goes by, the impact will become more inflationary than deflationary."

The president of the DNB thinks it is clear that Europe can only improve its resistance against the shocks from outside the continent by improving the internal market. Removing internal barriers to cross-border movement of people, goods and financial services can generate significant additional productivity growth.

"I think that we as Europeans don't have any other choice than to come together during these difficult times," Knot said. "To do this, we also need to realize how strong we are. We are a consumers market of 450 million people."

Stock exchanges across Europe opened with significant losses on Wednesday. The import tariffs that United States President Donald Trump implemented on almost all of the U.S. trading partners have now come into effect.

Investors were also shocked by the extra tariffs that Trump issued to China, which will now have to deal with an import tax of over 100 percent.

The losses come a day after the European stock exchanges showed some recovery from the heavy drop after Trump announced the tariffs. In Japan, South Korea, and Taiwan, too, the nascent recovery was dashed by fears that there would be no quick solution to the trade conflicts.

There is currently import duties of 20 percent for products from the European Union. Member states are expected to vote on import duties on U.S. products in retaliation for Trump's previous steel and aluminum tariffs on Wednesday.

Trump also said that he will announce specific import tariffs for pharmaceutical products. European biotech and pharmaceutical groups' shares dropped as a result. Sanofi dropped by over 4 percent in Paris, and GSK was around 3 percent lower in London. The Danish company Novo Nordisk, which makes popular weight loss items, lost almost 5 percent in Copenhagen.

EvoFedenex, the organization in charge of the trade and logistics interests of thousands of companies in the Netherlands, has detected a sharp decrease in the global bookings of sea containers for transport to the U.S.

The organization said that bookings have dropped by 67 percent since Trump announced the new tariffs at the beginning of the month.

Evodefenex said that 516,000 containers had been booked with the U.S. as a destination in the last week before the announcement. This then dropped to 169,000 containers in a week.