European Central Bank President’s speech at the European Parliament Committee hearing

Christine Lagarde, President of the European Central Bank (ECB), delivered a speech at the Hearing of the Committee on Economic and Monetary Affairs of the European Parliament. This was her fourth address to the Committee this year.

She highlighted recent technological, geopolitical, and structural changes impacting the economy, emphasizing the need to enhance Europe’s resilience and competitiveness.

Regarding the euro area outlook, economic growth was 0.2% in the third quarter, supported by domestic demand, with growth in services sectors such as tourism and digital services. Manufacturing and exports faced headwinds from higher tariffs and a stronger euro.

Future growth is expected to benefit from increased household spending, a resilient labor market, and infrastructure spending, though global trade uncertainties and geopolitical tensions remain risks.

Inflation was close to the 2% target, at 2.2% in November, driven by higher energy and services prices. Core inflation remained steady at 2.4%. Wage growth has moderated from 5.7% in Q2 2023 to 3.9% in Q2 2024, with indicators suggesting slower wage increases into 2026.

The ECB expects inflation to stay around 2% in the coming months, with risks remaining two-sided due to volatile global trade policies. The next Eurosystem staff projections will be published on December 18.

In October, the ECB decided to keep interest rates unchanged, following a data-dependent approach based on inflation outlook and underlying inflation dynamics, without pre-committing to a rate path.

Regarding monetary policy instruments, the ECB reaffirmed its commitment to a 2% inflation target. The primary tool is the set of three key interest rates, supplemented by other instruments as needed to ensure effective transmission and support monetary policy.

Key tools include Outright Monetary Transactions (OMTs), the Transmission Protection Instrument (TPI), and the Pandemic Emergency Purchase Programme (PEPP). OMTs address distortions in government bond markets with strict conditionality; TPI counters disorderly market dynamics in countries with deteriorating financing conditions; PEPP was launched during COVID-19 to support markets and economic recovery, with reinvestments fully discontinued as of December 2024.

The ECB emphasizes its flexible and adaptable toolkit to meet unprecedented challenges, maintaining transparency and accountability through ongoing dialogue with the European Parliament.

In conclusion, the Governing Council will continue to respond flexibly to new challenges and consider new instruments as needed. The ECB stresses the importance of other policies, such as the European Commission’s upcoming package on capital market integration and supervision, to strengthen Europe’s economic prospects and reduce vulnerabilities.

Implementation of these solutions is crucial for overcoming fragmentation, enhancing capital markets, and fostering innovation.