ECB Executive Board member discusses euro area resilience and policy outlook

Isabel Schnabel, Member of the Executive Board of the European Central Bank (ECB), was interviewed by Jana Randow and Mark Schrörs on December 3, 2025.

She noted that the euro area economy has been more resilient than expected despite global disruptions. The ECB upgraded its 2025 growth projection, with incoming data indicating continued growth in the fourth quarter. The European Commission’s Economic Sentiment Indicator is at its highest since April 2023, and Purchasing Managers’ Indices suggest solid expansion mainly driven by services, while manufacturing remains sluggish.

The economy is expected to grow above potential, supported by domestic demand, a robust labor market, fiscal expansion, and private investment, including AI-related activities. The outlook has improved, and downside risks to growth have decreased significantly.

Schnabel highlighted that uncertainty has diminished, partly due to new trade agreements, supporting future economic activity. Risks are now tilted to the upside compared to September projections.

Inflation is around 2%, with medium-term projections also near this level. Temporary volatility may occur due to energy prices and EU Emissions Trading System 2 (ETS2). Underlying inflation, especially services inflation, remains a challenge due to strong wage growth and demographic factors. Goods inflation remains below 2%, with some pressures from currency strength and lower energy prices easing.

She emphasized that inflation risks are tilted to the upside, with persistent food inflation and higher inflation expectations across horizons. The ECB considers deviations from target as moderate, analyzing their causes and potential for persistence, especially in relation to inflation expectations.

Schnabel stated that the ECB does not currently see a need for rate cuts and expects rates to remain stable unless shocks occur. Market expectations for a rate hike in 2026 or 2027 are seen as uncertain but plausible. She noted that global rate hikes, particularly in the US, could influence the euro area through exchange rates and long-term rates, but ECB policy remains independent.

Regarding liquidity, she explained that excess liquidity remains abundant, with normalization progressing smoothly. The transition to less ample liquidity is expected around the second half of 2026, with structural operations to be discussed in 2026. The ECB considers combining structural refinancing operations with bond portfolios for liquidity management.

On bond yields, she noted that corporate bond spreads are increasingly driven by firm-specific factors, indicating greater market integration. Public debt sustainability depends on growth and prudent use of borrowed funds. Schnabel refrained from commenting on specific German fiscal decisions but emphasized the importance of structural reforms alongside fiscal spending.

She discussed AI’s potential impact, noting increased investments and productivity gains over the long term, though estimates vary. Regarding banking regulation, she supports simplification but warns against loosening standards that have contributed to financial stability post-2008 crisis.

On digital currencies, Schnabel sees stablecoins as beneficial for cross-border payments but emphasizes the importance of the digital euro for domestic transactions, citing concerns about financial stability and monetary sovereignty. She acknowledged that a German ECB president could be a possibility, stating she would be ready if asked.