Euro area monetary policy and financial stability overview

In a speech at Spain Investors Day, ECB Vice-President Luis de Guindos highlighted the ongoing global economic transformation and increased uncertainty. Major shifts in US policy and the erosion of the multilateral system have disrupted trade, weakened confidence, and introduced geopolitical risks that are expected to persist.

These developments impact euro area economic activity and financial stability by delaying investment, reducing exports, and increasing household savings due to precautionary motives. Fiscal easing in several euro area countries aims to support higher spending, including on defense and security.

Euro area inflation remains around 2%, with energy prices lower than a year ago and slight easing in core inflation. Despite global challenges, economic activity grew by 0.3% in Q3 2025, driven mainly by services and supported by a strong labor market. Growth projections have been revised upward to above 1% for this year and 1.4% for the following years, with domestic demand as the main driver.

Household savings are high due to fears of future tax increases and income uncertainty. External shocks and geopolitical tensions, especially involving China and US trade policies, pose risks to growth and inflation, potentially causing volatile asset prices and tighter lending conditions.

Financial stability risks include concentrated asset markets, vulnerabilities in non-bank financial sectors, and interlinkages with banks. Elevated geopolitical risks may trigger sharp asset adjustments, threaten bank funding, and impact sovereign debt markets, especially amid fiscal challenges in some economies.

To address these risks, the ECB emphasizes maintaining bank resilience, simplifying banking regulations, and monitoring the non-bank sector. Strengthening European cooperation, completing the banking union, and unlocking the Single Market are seen as essential for future growth and stability.

Europe must adapt to the new global paradigm through increased integration and strategic reforms, ensuring resilience against ongoing geopolitical and economic uncertainties.