The European Central Bank published an interview with Executive Board member Piero Cipollone setting out his view that Europe’s competitiveness challenge is rooted less in manufacturing costs and more in technology and finance, alongside an investment shortfall. He also argued that monetary policy should avoid being overly focused on possible future inflation shocks when weak demand and underinvestment risk eroding potential growth, and linked the digital euro project to reducing reliance on non-European payment providers and safeguarding the role of the euro. Cipollone cited International Monetary Fund estimates that fragmentation within the European Union is equivalent to tariffs of 44% on goods and 110% on services, and pointed to a euro area current account surplus of around 3% of GDP, implying about EUR 435 billion less investment than saving. He noted that ECB staff have revised down GDP projections three times since June, with a cumulative downgrade of almost 1 percentage point for 2024-2026, and described consumption as recovering more slowly than expected as households save, with income gains tilted toward less liquid sources held mainly by wealthier households while some lower-income groups rebuild savings and reduce debt. He added that investment fell in 2024 and is projected to rise only modestly over the next three years, leaving the investment share of GDP in 2026 below 2023 levels, and argued that keeping demand low to insulate against future inflation shocks could be counterproductive if it further weakens supply potential. On payments, he said cash is used in just over 40% of transactions and online commerce represents around 36% of transactions by value, while card payments rely on a non-European operator two times out of three, which he linked to higher merchant fees. He framed the digital euro as a widely accepted “digital form of cash” for the euro area that would support strategic autonomy, provide infrastructure for innovations such as conditional payments, and help address risks from stablecoins that are currently mainly US dollar-based. The ECB’s March projection round is expected to update the assessment of inflation implications, after December projections assumed 2025 gas prices would be 25% higher than the 2024 average, with futures indicating slightly higher prices over the coming months.
European Central Bank 2025-01-09
European Central Bank’s Cipollone makes the case for a digital euro and warns against overly defensive monetary policy
European Central Bank Executive Board member Piero Cipollone emphasized Europe's competitiveness issues, focusing on technology and finance rather than manufacturing costs. He warned against monetary policy overly focused on future inflation amid weak demand and underinvestment. Cipollone linked the digital euro project to reducing reliance on non-European payment providers, noting card payments often depend on them. He highlighted a significant investment shortfall in the euro area, with GDP projections revised down and investment levels expected to remain below 2023 levels by 2026.