In a new blog post, European Central Bank (ECB) President Christine Lagarde urged Europe to strengthen protection against climate losses and expand grids and storage so clean electricity can better cushion energy shocks. ECB staff estimate that extreme weather in summer 2026 had only a small, temporary effect on euro area activity. However, heatwaves and droughts can leave lasting economic damage, and deteriorating agricultural supply could push food inflation higher. Historically, insurance has covered only a quarter of catastrophe losses in Europe, leaving households, businesses and public finances exposed. The European Commission's European Union (EU) Framework for Climate Resilience offers an opportunity to advance an existing proposal by the ECB and the European Insurance and Occupational Pensions Authority for an EU reinsurance scheme involving the public and private sectors. Nearly 12% of euro area economic output is exposed to risks linked to insufficient flood protection. On energy, heat and drought constrained hydropower and nuclear generation, while electricity supply was tightest in the evenings as solar output fell and cooling demand remained high. Greater grid capacity and storage would help move cheap solar electricity to where and when it is needed. With new grid connections taking two to 10 years, common EU rules could also allow firms with their own generation and storage to connect sooner in exchange for supporting the grid during periods of strain. Completing the savings and investments union and maintaining a stable climate policy framework, including carbon pricing, would make private investment cheaper to finance.

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