ECB Vice-President Luis de Guindos discusses the impact of Middle East conflict on the euro area economy

In an interview conducted on March 20, 2026, ECB Vice-President Luis de Guindos discussed the potential impact of the Middle East conflict on the euro area economy.

He stated that the conflict is expected to have a strong impact on both growth and inflation, with the severity depending on the duration and spread of the conflict.

The ECB’s baseline scenario assumes energy prices will peak in the second quarter of 2026, followed by a sharp decline. An adverse scenario considers the crisis lasting until the third quarter of 2026, with a slower normalization. The severe scenario projects a prolonged crisis with higher prices lasting into early 2027 and a slower recovery.

De Guindos indicated that a recession in the euro area is unlikely, even in severe scenarios, with positive growth expected. The ECB is adopting a data-dependent approach regarding interest rate adjustments, monitoring inflation, inflation expectations, and energy prices.

He emphasized that fiscal policy responses should be temporary and targeted, especially given the new fiscal rules and increased defense spending commitments. Regarding Spain, he highlighted the importance of having a budget to facilitate decision-making during this period of uncertainty.

The Vice-President also discussed the need for European strategic autonomy, including in defense and digital payments, advocating for the digital euro as a means to reduce dependence on US firms.

He mentioned the upcoming potential for Spain to have a representative on the ECB’s Executive Board and commented on Spain’s economic resilience, supported by improved competitiveness, a sound banking sector, population growth, and EU funds. Challenges include housing supply and public service capacity due to population increases.

De Guindos reflected on the Sareb “bad bank” and its role in credit restructuring, noting the policy choices involved in social spending versus debt repayment. He concluded with plans for post-ECB activities in academia and expressed no intention of returning to politics.