In an interview, European Central Bank President Christine Lagarde identified the energy crisis linked to the Middle East conflict as the most immediate threat to the European economy because it is raising prices while weakening growth. She described the shock as part of a series of interconnected crises that have undermined Europe’s reliance on cheap Russian energy, Chinese export demand and the U.S. security umbrella. Reviewing the ECB’s interest rate increases in June and September, Lagarde said monetary policy must prevent reduced energy supply and higher costs from feeding durably into inflation. She acknowledged that tighter financing conditions may restrain growth and said the ECB closely assesses the strength of economic activity before acting. The ECB expects euro area growth of 0.9% this year, compared with 0.5% in France. Lagarde warned that political uncertainty, persistent deficits and debt close to 120% of gross domestic product weigh on French investment, while debt cancellation would endanger market access and violate European treaties. Lagarde also reiterated that climate risk must be incorporated into the ECB’s economic analysis, balance sheet and bank supervision, while governments and parliaments remain responsible for climate policy. On her tenure, she left open the possibility of departing a few months before her term ends in October 2027 but confirmed that she will remain in office during 2027.
European Central Bank President Christine Lagarde flags Middle East energy shock as top threat and defends rate increases
European Central Bank President Christine Lagarde identified the Middle East energy crisis as the main immediate threat to European prices and growth. She defended recent rate increases as necessary to stop the energy shock from feeding durably into inflation, while acknowledging the effect on financing and activity. Lagarde also confirmed she will remain in office during 2027, although she may leave a few months before her term ends.