Committee on Economic and Monetary Affairs Ordinary meeting
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ECON European Parliament
Follow its sittingsChristine Lagarde
Merci madame la présidente, mesdames et messieurs les députés, c'est un plaisir renouvelé de venir devant votre institution pour notre dialogue habituel. So, when we last met in February, inflation had remained close to our ECB 2% target for over a year and euro area economic activity was showing solid growth momentum. Only a few days later, war broke out in the Middle East, reminding us how quickly external shocks can reshape the economic outlook. The topic you have chosen for today's exchange, how monetary policy should be conducted in an environment of heightened geopolitical tensions and frequent supply shocks that you just alluded to, madame president, is particularly timely.
In my remarks today, I will review what the incoming data tell us about the euro area economy and outline our latest monetary policy decision. I will then explain in more detail how our monetary policy strategy is guiding us in responding to shocks such as the one that we are facing today. So the euro area economy was gaining some traction when the war in the Middle East broke out. Real GDP rose by 0.3% quarter-on-quarter in the first quarter of 2024. You might say what?
Well, yes, once adjusted for exceptional volatility in Ireland. You must have received this two-page documentation that we have always promised as part of our dialogue, and you will see for yourself how this Irish peculiarity has impacted the real GDP outcome. But the war is now weighing on activity, and incoming information points to a slowdown, especially in services. Manufacturing in the meantime has held up.
This partly reflects inventory building in response to supply chain pressures, but also stronger defense spending. Looking ahead, the June 2026 Eurosystem staff projections see real GDP growth at 0.8% in 26, 1.2% in 27, and 1.5% in 28. Staff now expect domestic demand to be weaker than they projected in March, as the war has dented confidence and higher energy costs are weighing on real incomes. At the same time, household balance sheets remain solid overall and consumption should continue to be the main driver of growth.
Investment should also be supported by firms' spending on new digital technologies and government spending more on defense and infrastructure. The war is likewise pushing up inflation, which rose to 3.2% in May from 3% in April. The main driver of inflation since February has been rising energy inflation, which was above 10% in both April and May. In May, inflation excluding energy and food also increased to 2.6%, partly reflecting the initial indirect effects of higher energy prices.
And you have that pretty well established in the inflation documentation that you have in your two pages if you have had a look at it. Reflecting this energy spike, inflation expectations over shorter horizons have risen well above the levels seen before the outbreak of the war in the Middle East. But the public does not currently expect high inflation to be lasting. Most measures of longer-term inflation expectations stand at around 2%, supporting the stabilization of inflation around target in the medium term. And that's the third graph that you have on the first page of the documents that we have sent you.
We are confident that with appropriate monetary policy action, inflation will return to target. The June Eurosystem staff projections foresee headline inflation at 3% in 2026, 2.3% in 2027, and 2% in 2028. But the outlook remains uncertain, with upside risks to inflation and downside risks to economic growth. The peace agreement in the Middle East is welcome. But the situation remains fragile, with risks of setback or possible re-escalation.
The full implications of the war for medium-term inflation and growth will depend on the intensity and duration of the energy price shock, as well as the scale of its indirect and second-round effects. This uncertainty is reflected in the broad range of outcomes for inflation and growth in the alternative scenarios prepared by staff in the context of their projections and published on our website and that include a milder scenario, an adverse scenario and a severe scenario.
So in line with our commitment to ensuring that inflation stabilizes at our 2% target in the medium term, as you indicated Madam President, we decided to raise the three key ECB interest rates by 25 basis points at our last June meeting. The decision to raise rates, fully considered and discussed, is robust across the scenarios prepared by staff, the milder, the adverse and the severe, meaning that in all scenarios a rate hike was warranted. Recent developments have remained within the range of scenarios considered.
With this decision, we remain well-positioned to navigate the uncertainty caused by the war, and we will of course closely monitor developments and follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. And we are not pre-committed to any particular rate path.
Let me now explain in more detail how our monetary policy strategy guides us in an environment shaped by frequent supply shocks and how it supported us in the decision that we took in June. The latest shock emerged suddenly and developed rapidly, but it did not find us without a compass. Our 2025 strategy assessment focused precisely on how monetary policy should respond in an environment characterized by higher uncertainty and more frequent supply shocks, as you indicated, President, in the last four years in particular. Our strategy is designed to ensure that we can continue to deliver price stability under such conditions, and it rests on three principles.
And those principles have guided our reflections and our decision-making. First, we must carefully assess the nature of the supply shock, its size, persistence, and propagation. Monetary policy cannot lower energy prices directly. The central bank cannot reopen the Strait of Hormuz, let's be clear. But it must assess the extent to which higher energy costs spill over into other prices, what we call the indirect effects, and risk triggering second-round effects through wages and price setting.
Both the size and persistence of the shock are critical. Small and short-lived shocks typically have limited effects beyond the energy component. But as shocks become larger and more persistent, their impact can increase in a non-linear way, with stronger and more widespread effects on prices and on wages. The macroeconomic environment also plays a key role in how the shock propagates. When demand is strong, remember 2022 for instance, firms may find it easier to raise prices.
When labor markets are tight, workers may be in a better position to bargain for higher wages. These dynamics are more likely to become relevant when inflation is already elevated. Compared with previous inflation episodes, however, at this stage, the current shock appears to be smaller in magnitude and occurring in a different context.
During the previous episode, the economy was emerging from the pandemic, which had created significant macroeconomic imbalances, including supply chain disruptions and highly accommodative monetary and fiscal policies to support recovery. In contrast, at the onset of the current shock, inflation was closer to target, if not at target, and monetary and fiscal policy were no longer highly accommodative. This suggests... I need to find my line because I want to make my point clear. That the pass-through may be more limited thus far, thus far.
The risks remain if the shock intensifies or persists. But this does not mean that we can be complacent. After the high inflation period of 22 and 23, price and wage formation may be, we don't know yet, we're not seeing it, may be more sensitive to new shocks. The memory muscle is better trained. Second, we do not only focus on the baseline, we also focus on the risks around it.
In an uncertain environment like this one, policy cannot rely solely on the most likely path for the economy. As a result, we place strong emphasis on the risks surrounding the baseline and, where appropriate, we use alternative scenarios to assess how different shocks configurations could affect the outlook. And you have a clear description of those shocks, which is the last graph on the second page, where you have all three scenarios: the milder, the adverse, and the severe, both in that it applies to GDP and to inflation. The non-linear effect of supply shocks also make this essential.
When they become larger, more persistent, we can see disproportionately greater deviations from our inflation target. The scenarios that we have been using since March to assess the current shock are a key tool of capturing these risks and guiding policy decisions at a time of high uncertainty. Third, our policy response must be tailored and graduated. In line with the medium-term orientation of our strategy, the appropriate response to a deviation of inflation from target is context-specific, taking into account its source, size and persistence.
So there are three broad cases that we should consider. If the shock is small and temporary, short-lived. It can in principle be looked through. I've heard that many times, why didn't you look through? Well, if the shock gives rise to a sizeable but not too persistent overshoot of our target, a measured adjustment of policy is warranted.
If, however, inflation is expected to deviate significantly and persistently from target, our response must be appropriately forceful or persistent to prevent self-reinforcing dynamics arising and the risk of inflation expectations de-anchoring. This is the framework which guided the decision that we took in June. For now, we are in the second case. The shock is too large to look through without jeopardising our target.
But we see no evidence yet of de-anchoring of inflation expectations or second-round effects that would warrant a more forceful policy response at this stage. This graduated approach requires us to remain agile. And by proceeding meeting by meeting and staying data-dependent without pre-committing to a particular rate path, we can adjust our response as the shock evolves and ensure that it remains proportionate. So to conclude, supply shocks are becoming more frequent. The ECB is well-equipped to meet this challenge.
Our updated strategy provides a clear framework to assess shocks, manage risks and calibrate our response. It allows us to respond proportionately to the shock we face and to remain anchored to our medium-term objective of price stability. But monetary policy cannot fully offset the impact of such shocks.
Strengthening structural resilience, especially in the energy sector, will be essential to reduce the euro area's vulnerability to external supply shocks. Finally, taking before taking your questions, I would like to very specifically thank all of you, but in particular the rapporteurs, the shadow rapporteurs and this committee, Madam President, for the progress made on the single currency package.
This is an important milestone in moving the digital euro project forward and anchoring it firmly in the democratic debate. This is a matter that I have personally been engaged in for the last six and a half years, since seven, and I'm delighted to see that it's coming to fruition in this so important arena of democratic debate. Thank you very much.
Aurore Lalucq
Thank you, President Lagarde. Thank you for all these those explanations that were needed. And I will now open the Q&A session and we will start with Markus Ferber for EPP. You have one minute and a half for the question and then there is a follow-up that is possible if you want of one minute.
The floor is yours, Markus.
Markus Ferber
Ja, vielen Dank, Frau Präsidentin. Und ich will Ihnen auch ausdrücklich gratulieren zu dem Beschluss vom 11. Juni, die Zinsen zu erhöhen. Ich glaube, das war das richtige Signal. Aber ich mache mir auf der anderen Seite Sorge, weil Sie ja auch Ihre Wachstumsprognose für dieses Jahr auf 0,8 % abgesenkt haben, während die Inflationsprojektionen, und Sie haben uns ja die Graphen erläutert, deutlich nach oben korrigiert wurden. Das heißt, Stagnation auf der einen Seite, was die Wirtschaft betrifft, und Inflation auf der anderen Seite, was die Geldentwicklung betrifft.
Das nennt man Stagflation. Welche Instrumente haben Sie in der Hand, um gegen eine Stagflation auch entsprechend reagieren zu können?
Und die zweite Frage, die mich umtreibt, ist: Im Gegensatz zu 2022 ist die Ausgangslage in der Eurozone ja deutlich enger als damals. Strukturelle Defizite in den Mitgliedstaaten sind größer. Die Staatsschulden kosten wieder richtig Geld. Allein den Mitgliedstaat, den ich am besten kenne, zahlt jetzt schon über 3 % für zehnjährige Staatsanleihen, und das sind noch die günstigsten Tarife, glaube ich, in der Eurozone. Und Sie haben ja mit dem Transmission Protection Instrument eine wichtige Funktion zur Verfügung gestellt, um diese Transmissionsmechanismen im Krisenfall abzusichern.
Aber da besteht natürlich auch das Risiko, dass die Existenz dieses Instrumentes wie so eine Art Entlastungsinstrument wirken kann, das die Marktdisziplin der Mitgliedstaaten unterhöhlt. Deswegen meine Frage: Wie stellen Sie sicher, dass dieses Instrument nicht als eine implizite Notenbankgarantie für die Staatsverschuldung der Mitgliedstaaten wahrgenommen wird? Und wie sehen Sie die geldpolitische Unabhängigkeit langfristig vor dem Hintergrund einer immer höheren Staatsverschuldung und dem Risiko der fiskalischen Dominanz? Vielen Dank.
Christine Lagarde
Thank you very much for your encouragement on the monetary policy decision that we took last week. And you are right in saying that it's a signal, but it's also, in my view, the right analysis of the data that we received, the projection that we have for the inflation outlook, the risk surrounding our projections as well and the inflation outlook, the underlying inflation as well, which is a good indication of where we're heading. And in view of all that, I think, and I agree with you, that that decision was warranted and, as I said, is robust across all scenarios that we have produced.
You mentioned our revision of both GDP and inflation, and you're right that we revised downward in particular for, well, downward for GDP and upward for inflation, 0.8 for GDP, which is, you know, it's, it's not trivial. I, I would not call it a stagnation. And, and I think that because it's a Eurosystem decision, we got the best brain of all the NCBs when it comes to projecting the, the economic result and the expected output to have the, you know, a good proposal that canvas the entire Eurosystem. But we did revise downward a little bit.
We were at 0.9 in March, we are at 0.8 in June. And the projection in terms of GDP are also revised. 1.4, sorry, 1.4. I'm looking at my scenario, which is the wrong way to look at things, of course. But anyway, we've revised slightly down on both 2027 and maintained at 2028.
Inflation, same thing. We had to revise upward, as I said, 3% for 26, 2.3 and then 2% in 28, which brings us back to the medium-term target that we had. So, in view of all that, you mentioned one of the instruments that we have available in order to address issues if they were to arise.
And I would just like to mention that this instrument, TPI, which we engineered in previous time, is predicated on a number of criteria, on a certain number of conditions, and is certainly not intended to address the fundamentals of an economy and the necessary restructuring that needs to happen. So we have I think all the tools needed in order to address any developments in the euro area, but each of them applies to a particular set of circumstances, and each of them obeys a number of criteria which will be observed by the Governing Council having the discretion to identify and diagnose the situation, and we will do so if and when it is needed.
Ja, wenn ich zum ersten Teil meiner Frage zurückkommen darf, Sie sehen also keine Stagflationsgefahr.
Christine Lagarde
No, what I said is when we have a projection for 26 coming from the whole Eurosystem at 0.8, it is not stagnation of our economy. And I think, you know, if I don't mean to brag about our wisdom, but I think that we need to examine our numbers with a lot of scrutiny because the Irish numbers, with all due respect to Ireland and the Irish economy, but for all sorts of reasons and the international activity of international companies, these numbers in a way distort a little bit the actual fundamentals of all Member States, including Ireland for that matter. So we do calculate on the basis of the modified domestic index, which has been produced a few years back under the leadership of Philip Lane as Governor of the Bank of Ireland, which I think reflect more accurately the activity in the euro area.
Thank you. S&D, Jonás Fernández.
Jonás Fernández
Muchas gracias, chair. Bienvenida, presidenta. El tema que nos ha traído hoy aquí, los shocks sobre la oferta, el actual derivado de la crisis en Oriente Medio, pero el anterior derivado del inicio de la guerra en Ucrania y tantos otros, han consolidado una opinión en Europa sobre la necesidad de mejorar la autonomía estratégica, de reducir nuestras dependencias sobre terceras jurisdicciones.
Y esto afecta también a la política comercial de la Unión Europea y, como digo, a toda la agenda de autonomía estratégica en la que la Comisión y los colegisladores estamos trabajando. La cuestión es que reducir dependencias para ser menos vulnerables puede tener también algún impacto sobre el nivel de precios internos o incluso sobre la inflación. Podríamos tener un mundo menos volátil, que es lo que estamos sufriendo ahora, pero la autonomía estratégica y la producción local de bienes y servicios que adquirimos fuera podría tener también algún impacto sobre los precios.
Me pregunto, y con esto concluyo, si el BCE tiene pensado evaluar, contribuir a explicitar ese trade-off entre precios y autonomía estratégica y ayudar a los decisores públicos a tomar decisiones. Gracias.
Christine Lagarde
Thank you very much for your question. As I tried to explain in my introductory statement, our objective, our mission, our mandate is price stability. And we have defined it in our strategy review initially in 21 and then again in 25 when we updated, we've defined that price stability objective as the 2% medium-term target that we are constantly reviewing and analyzing on the basis of, you know, inflation outlook, underlying inflation and the dynamic of monetary policy transmission. So we regard that as our mission and I don't think that we are looking at trade-offs, so to speak. We are looking at whatever is going to have an impact on price stability.
So if for instance growth was to stagnate or if sovereignty was going to be undermined we have to analyze that in respect of what impact it has on price stability. That's how we take it into account. But for sovereignty to be affirmed and defended price stability is what we can deliver. Custody of the currency is what we can deliver. Making sure that the payment infrastructure making sure that in the digital age our currency is solid.
This is this is our duty.
But there are multiple other priorities and tasks that we cannot deliver because it is not our mission, it is not our mandate, and it falls within the remit of other authorities in the executive branch, in the parliamentary branch. And I very much hope that this is taken very seriously because it's going to matter a lot in the future.
Jonás Fernández
I fully agree with you. My question is, don't you think that the strategic autonomy agenda or the new trade policy that we are implementing in Europe could have any impact on prices? This is my question.
The strategic autonomy agenda, the necessity to review our trade policy, all of these elements will not have any impact on prices? And in that case, the ECB is thinking about or trying to calibrate or understand how these policies taken by other institutions could affect prices level. Thank you.
Christine Lagarde
On that particular item, it's unclear.
So we do not have, you know, final and conclusive analysis of whether that acquisition and defense of sovereign autonomy or on the contrary lack of sovereign autonomy is going to be having a disinflationary or inflationary impact on us. So we are looking at that carefully, we're trying to analyze it to understand better what the impact will be, but it's for the moment it's unclear. And I think I'll leave it there and hopefully we can clarify that.
The sort of the intuitive conclusion is that the lack of sovereignty and therefore, you know, sort of being in the hands of other price determinants would likely be inflationary. But I think we have to get under the hood of that in much more analytical way than I'm doing it now. But that's the intuitive response.
Auke Zijlstra
Thank you, Madam Chair. That was very well pronounced. I'll continue in Dutch. Mevrouw Lagarde, de ECB verhoogde de rente in de eurozone dus naar 2,25% na een lange periode zonder verandering. Ik persoonlijk had een hoog renteniveau ondertussen al verwacht en eigenlijk ook wel een beetje toegejuicht.
Maar dat komt waarschijnlijk doordat u beschikt over data die ik niet heb. Maar bij mij roept het de vraag op welk renteniveau door de ECB als natuurlijke rente wordt gezien, waarbij de hoogte niet stimulerend maar ook niet remmend op de economie is. Kunt u daar iets over zeggen?
Maar mijn vraag is ook wat breder. Jarenlang hebben overheden kunnen profiteren van uitzonderlijk lage rentes. Nu de rente weer dichter bij historische gemiddelden ligt, wordt zichtbaar dat veel Europese landen kampen met hoge schulden, te hoge schulden. België en Oostenrijk kregen recent dan ook een kredietratingverlaging. Bovendien hebben overheden te maken met structurele uitdagingen rond de betaalbaarheid van pensioenen bijvoorbeeld, waar we het op dit moment hier ook over hebben, en zijn er omvangrijke investeringen in defensie afgesproken.
Mag ik u vragen hoe zorgelijk u die combinatie van factoren over de houdbaarheid van de overheidsfinanciën in de eurozone vindt? En ziet u een risico dat er politieke druk gaat ontstaan om de rente laag te houden, juist met het oog op de houdbaarheid van de overheidsfinanciering? Dus de hoogte van de natuurlijke rente, de houdbaarheid van overheidsfinanciën en eventuele politieke druk. Dank u wel.
Christine Lagarde
Well, thank you very much for your question. And it you tackle clearly one concept which is the R star, the neutral rate, this sort of ideal point where monetary policy, hence interest rates, nor stimulate nor restrict the activity. And this is that sort of wonderful moment which you can never really assess because it's predicated on the absence of shocks.
And we are just moving from one shock to the other as as one of you I think identified ever since, you know, 2014, the the sort of initial invasion of of Crimea by Russia and and then thereon, we've been moving from shock to shock. However, economists are very attentive and try to do the best job they can to identify the area where we assume that the interest rates is as neutral as possible. And that range has been identified by the staff of the ECB as being in between 1.75 and 2.25. That was the reference until recently where as a result of multiple factors affecting our economy, it was possibly argued that this upper range was closer to 2.5 than to 2.25.
Does that make a difference and should we as a result consider that inevitably there's a path as a result of this ECB staff analysis? I don't think so. Because we do not actually use that R-star point or even range to necessarily decide the monetary policy decision that we make. We look, we apply a reasoning and a stance that I have tried to describe in my introductory statement and it's on that basis that we make decisions.
But I think I have tried to address your question of the R-star as well as could be. And it's what you said about pension and about, I don't know if you mentioned productivity, but it's clearly one point that would have an impact. These elements we constantly take into consideration, and staff does this analytical work on a regular basis.
Can I please? Thank you very much for your explanation. I gather from your point of view that at this moment we're not past the situation of stimulating the actual economy. With regard to the amount of public debt, are you worried?
That was my final question. Thank you.
Christine Lagarde
There is one element of my response on the previous point that I would like to come back to because you said what is your favorite rate or something like that. My favorite one is the one which actually keeps the medium-term inflation at 2%. Because that's that's the that's the objective we have and that's how we define price stability.
So whatever is the interest rate applicable that will actually deliver is the one that I would favor myself. Now the issue of public debt is something that obviously is of concern to the Commission, to the member states in how they define their debt sustainability, in how they define the service of their debt and you know I should not be ever either fiscal dominated or financially dominated and I should really focus, we should focus at the ECB on price stability as an objective.
Giovanni Crosetto
Grazie Presidente.
Presidente Lagarde, lei ha definito l'aumento di tassi d'interesse non come una decisione drastica ma come un semplice segnale. Io le vorrei chiedere a chi è rivolto precisamente questo segnale. E glielo chiedo perché l'aumento dei tassi d'interesse ha come principale obiettivo quello di frenare l'inflazione attraverso una riduzione della domanda interna, andando quindi a ridurre consumi e richieste di credito. Ci sono due motivi che mi portano a dirle che l'aumento dei tassi è stato un errore. Il primo è che questo aumento dell'inflazione è dovuto a fattori esterni, legati principalmente all'aumento dei prezzi dell'energia che tra l'altro non si sono ancora diffusi al resto dell'economia.
Il secondo è che questo aumento dei tassi di interesse rischia di indebolire ulteriormente l'economia europea già duramente provata dagli effetti della guerra. Lei, Presidente Lagarde, di fatto ci sta dicendo che la BCE vede un rischio inflazione superiore al rischio di una bassa crescita o stagnazione. E questo di fatto è in linea con un mandato incentrato solo sulla stabilità dei prezzi che non tiene in considerazione crescita, competitività e quindi occupazione, come invece giustamente fanno i suoi colleghi americani della Federal Reserve.
Le vorrei infine chiedere come commenta l'accusa di incoerenza di una politica restrittiva da parte della BCE nel momento in cui la Commissione Europea sta giustamente concedendo delle deroghe proprio sulle spese per investimenti legati all'energia. Aspetto le sue risposte, grazie Presidente.
Christine Lagarde
Thank you very much and I think you have described part of the rationale behind the decision that we took last year and the decision to increase rates in general.
Because the impact that we have in order to deliver price stability and fight inflation is by either dampening demand and or anchoring or re-anchoring inflation expectations.
And when we see the risk of possible de-anchoring of inflation expectations at all levels and however measured, either by markets, or by surveys, or by consumers themselves, it is very important that we make those decisions so that we do not have to necessarily dampen demand as much as we would have to if we didn't pay attention to inflation expectations. So for the moment, as I have said in my introductory remarks, we have seen some de-anchoring of inflation expectations, particularly at consumers' levels in the short term. So if you look at the, I'll bring you back to the charts that you have. If you look at the one on the right side of the first page, you have the inflation expectations.
And you see that when you compare the October, sorry, the February and the April expectations, you see that it has moved up for the first year, a little bit for the three years and virtually not for the five years. Those are elements that we pay close attention to. And whether it is this one is obviously an indication for the short term, but that's often the case when there is a rise of prices that the the expectations of the consumer is hiking up. What matters to us is the longer term expectations. And that one has been broadly unchanged either by market measures or by survey measures or by consumer measures.
So these, you know, I just wanted to come back to that because it's it's a really important component in the assessment that we do of the impact of our decisions. I think I I will again say what I've mentioned.
When we see inflation, HICP, which includes all the components of the basket, including energy and food, move up in the way it has from the 1.9% that we had in February to 3.2% in May. And more importantly, when we see that core inflation, taking out energy and food, is also moving up, particularly propelled by services, which went from 3 to 3.5% in short order. Then we have to be very attentive and we think that we have to take measures, particularly if in the meantime we see that growth, which we have revised a little bit by 0.1, is holding. And when we see that the financial sector is solid.
And that brings me to the comparison with what we have seen in 2008, in 2011, and in 2022, where we had different set of circumstances. Midst of a financial crisis 2008, 2011, when interest rates were hiked in the midst of an energy crisis, and 2022, when it was not a pure supply shock, you had a mixture of supply and demand and a fiscal and monetary situation that was vastly different. So, I hope I have explained to you a little better the context in which we have taken our decision, which we believe is, as I said, robust across all scenarios, better one than baseline, but also worse one than baseline, bearing in mind that at the moment, given the reduced uncertainty, we are probably in between base and milder.
Giovanni Crosetto
Sì, gentilmente velocemente ritorno sulla seconda domanda e cioè su come commenta le accuse di incoerenza di questa politica di fatto restrittiva da parte della Banca Centrale Europea nel momento in cui la Commissione Europea sta invece concedendo delle deroghe proprio sulla spesa per investimenti legati all'energia.
Lei non pensa che andando ad aumentare i tassi di interesse di fatto questi investimenti siano frenati e quindi ci sia un conflitto tra le politiche della BCE e quelle della Commissione Europea?
Christine Lagarde
I think my first response to your question is that I do not think that as currently decided our monetary policy is restrictive. As simple as that.
Ľudovít Ódor
Thank you, Madam President. I broadly share the assessment you gave us. When we have supply shocks, weak economic activity and huge uncertainty. And even I would add two more hurdles.
One is that you mentioned that you are having your reaction function based on the nature of the shocks. I'm even not sure about the nature of the shocks, whether these are temporary, persistent, big, small. You know, it's these are times of high uncertainty.
And also the second hurdle I wanted to mention is that also the effectiveness of monetary policy is lower in this environment. Since we are watching the World Cup right now in football, I want to mention the famous Maradona theory of interest rates, which means that if you can somehow shape the expectations of the private sector, then there is no need to make abrupt changes because, you know, you can have a kind of a pre-commitment, which in the current environment is impossible. So therefore, even for the shaping the expectations of private players is very hard. So I have two questions related to that. First one is that you mentioned energy prices, but I'm a little bit concerned also about food prices because of the fertilizers.
And the second question is this uncertainty lowers the potential output because, you know, it's much harder to invest in an uncertain environment. Do we have a kind of an estimate of the potential growth in the euro area?
Is it declining because of this uncertainty? Thank you.
Christine Lagarde
Well, thank you, thank you so much for your assessment of our reaction function. I don't suggest that we need the hand of God to deliver, but maybe Maradona can give us a little bit of a push in the right direction here.
I completely agree with your analysis of the nature of the shock, which in the climate of uncertainty and almost daily changes is difficult. And that's I think the reason why we need so much the scenario analysis that we have produced and that we have published, which are available and are I think reasonably clear to understand. And they really test our decision across different sets of energy prices, length of the shock and repercussion within the economy. So energy prices, as you will see in the scenarios, they are of a different level. They last for a period of time.
They return to pre-war levels or sometimes below that, depending on the scenarios. And all in all, what we are seeing now is a significant decline since the war alleged to be peace agreement, memorandum of understanding. And we've seen a decline of 17% for energy, for oil, 18% for gas, increase of electricity prices, but there has been a significant impact of the announced memorandum of understanding between the United States and and Iran. Having said that, we are still significantly above pre-war levels by a range of about 30%, certainly on on oil.
Food prices is more complicated. And when you look at the food prices now, food prices have declined in the last couple of months. And it's counterintuitive because we would have thought, many would have, conventional wisdom would dictate that because of the impact on the price of fertilizers, a significant amount of which goes through the Strait of Hormuz, the result would have been an increase in food prices. And you could also deduct from the impact of El Niño that we would also see increased food prices.
This is not yet the case. And we believe that the impact on food prices is likely to take a bit longer and we are likely to see that in the course of 27 more than in the course of 26, but we have to be very attentive to that. On the, so food inflation decreased actually to 1.9% in May 26. On investment, we are seeing a stabilization of investment. Investment had been on the rise.
We're now seeing a flattening of investment, particularly from the private sector, less so from the public sector, notably because of the investment in defense and infrastructure. Thank you.
Rasmus Andresen
Thank you so much, President. In our committee, we are currently discussing on how to strengthen the global role of the euro. We are working on a report there and we will have an event later, but I would also like to get your assessment on this already in our monetary dialogue today on what's your view is on the state of play when it comes to the global role of the euro.
You have earlier called for the creation of a common euro-denominated safe asset to deepen the EU's capital markets, and this is also one of the topics we would like to address with our report. So what I would like to hear from you is on what kind of steps do you see to establish this and also in general a bit more on the current state of play on the global role of the euro and also on how the euro can be strengthened in an economy and a monetary world which is a bit different than it had been some years ago.
Christine Lagarde
Well thank you so much and thank you for taking a clear interest in the international role of the euro. For those who don't know we have an event later today at the House of the Euro at which we will debate with you notably but with also Valdis Dombrovskis Commissioner Dombrovskis the role the international role of the euro and how it is characterized, what are the components, what are the missing components, where do we need to do more work. So I think in each and every area we have to do what is necessary. And we as central bank for the euro area we look at what is within our remit and what we can do. We do so with in the background of our mind the attributes of a sovereign currency which plays an international role.
The facts first. The euro represents a little over 20% of the currency reserves held by national central banks around the world. It has been more or less stable since 2019.
We did not take a hit at the time of the crisis, or if we did we recovered, but we are now pretty much where we were in 2019. The other major currencies are number one the US dollar, still, of course, although slightly declining, and other currencies including in particular the renminbi, which has slightly increased in both reserves but also by other measurements. And one component has increased as well most recently is the volume and the value of gold as reserve in the reserves of the national central banks. I think this is not the only account by which you measure the solidity and the international pattern of a currency.
You have to also measure how much invoicing is done in a currency, how much issuance is done in a particular in a particular currency, and that gives an idea of, you know, how strong a currency is. It's also obvious to us that to strengthen the international role of our currency, we need several attributes that have nothing to do with monetary policy.
I think where we can play a role is by being a strong institution, by being an independent institution, by respecting the rule of law and inscribing our action within those parameters. We also have the responsibility to provide enough liquidity so that those in need of euros in order to avoid fire sales, for instance, that would be damaging for the proper transmission of our monetary policy, have access to plenty of liquidity. And it's in that context that we enlarged and redefined the role of our repo lines in euro, which will become effective in the new format, new framework as of July the 1st. But other elements are necessary. A clear international trading network.
A strong defense. Predictable policies by other actors.
And all of that is outside the remit of the Central Bank. But from our perspective, we try to do the best we can in order to respond to the demand in terms of liquidity, the demand in terms of safety and security and reliance on the institution. Thank you.
Rasmus Andresen
Yes, very briefly just because I think in some of your statements in the past you had been even more clear on what what kind of instruments we need to see. I don't want to quote them, but I just would like to ask you if you think or your assessment is that we're doing enough to strengthen the role of the euro or if you would like to wish a little bit more ambition when it comes to some of the things we are debating right now.
Christine Lagarde
Well, as as we both know, it's a strong attribute of an international currency of reference to have a deep and liquid market that includes treasury a la treasury bonds like the US treasuries for instance, and that we do not for the moment satisfy that requirement. When you look at what is common debt issued at the European level, it's one one trillion as opposed to what would be the international issuance of of treasury bonds which is much more than that obviously. Under what conditions this could happen, what criteria, what attributes, what guarantees, what moral hazard containment and all of that is something that obviously other parties than the European Central Bank should have to decide. But it's an important step. Yeah.
Rada Laykova
Thank you, Madam Chair. Madam Lagarde, the IMF warned recently that several euro area states are heading towards debt of 130 to 140% of GDP within a decade. So markets actually do not care why the Maastricht limits are breached, whether it's defense, health, or anything else, the debt is debt.
And meanwhile, Brussels keeps banks loaded with government bonds. Through the NSFR quick fix, the EU froze its liquidity rules below the Basel standard so that demand for state bonds would not fall and borrowing costs stay low. The banks once again treat sovereign bonds as always safe and liquid, which the last crisis proved they are not. This tightens the dangerous link between fragile states and banks. And on top of this, the EU is reviving securitization, the ABS market, which is the very instrument at the heart of the 2008 crisis.
So together, this looks similar to the conditions before the last crisis. I know fiscal policy is not your mandate, but the ECB's asset purchases have repeatedly made it your concern. So my question is, how do you assess this combination: reviving ABS, freezing Basel through the NSFR, and the escalating debt of member states? Thank you.
Christine Lagarde
Thank you very much for your question, which I'm going to use to actually address a point which is under debate, which will come to you at some stage, I'm certain. And that is the issue of changes, of improvements on the financial scene and in the financial sector, which is often presented as simplification and which in our view is necessary as long as it does not undermine the resilience of the financial sector. And trust me, we will be very attentive to all proposals, and there are some very interesting ones underway at the moment. But obviously they should not undermine the resilience of the system.
We have lived through 2008, we have experienced the trauma that can result from a financial crisis and this is not something that we should consider lightly, as a result of which obviously simplification should not be equal to deregulation. And I think that it's important that this be reminded. Thank you.
Thank you. Follow up?
Rada Laykova
Yes, thank you. So let me develop my question further. The EU's energy and sanctions policy here is in practice a partial self-embargo. So combined with the instability in the Gulf, it points to lasting pressure on energy prices and therefore persistently higher inflation that leaves you little room for new quantitative easing.
And at the same time, the rising debt of member states may soon demand the opposite, a new ECB program to keep it afloat. So the ECB ends up in sort of a stalemate, unable to do quantitative easing of inflation, but pushed to act because of debt until the monetary wheel no longer works. So Madame Lagarde, how do you intend to avoid being trapped in a similar scenario?
Christine Lagarde
Well, thank you so much, but I don't think that I agree with the premise of your own scenario. When you say that we will have lasting pressure on energy prices, this is not what we anticipate. We flag various hypothetical in our scenarios, and in particular, if you look at them in the adverse and the severe scenario, we look at prices and we try to anticipate that. This is not the baseline, certainly. This is not the mildest scenario, and as I've indicated earlier, we are seeing ourselves now between the baseline and the mildest scenario.
So we don't anticipate that. If you look at what the experts in terms of energy, in terms of reserves are telling us, they expect or fear more of an abundance of energy in the future than restriction and increase of prices as a result. But we have to be prepared for all scenario. That's a point where I agree with you. And under the circumstances, we also believe that the best response in the face of what we have, this energy shock, its persistency, its size, and its possible diffusion throughout the economy, the best response that we have is the interest rate.
So we're not looking at anything else at the moment.
We have plenty of tools in the toolbox, but what we're looking at is the interest rate. Thank you.
Thank you so much. The second round of question, one minute for the question, three minutes for the answer, and I will start with Luděk Niedermayer for EPP.
Luděk Niedermayer
Thank you, Madam Chair, and thank you, Madam President, for being with us again.
So first, thank you for clarity and transparency with which you explained your monetary action. I guess it's well-justified. And I also share your view that we must very carefully follow the data and be able to react appropriately because the level of uncertainties is really, really huge. I want to look a little bit more, more into the future and ask you how you see the medium-term perspective of EU economy, especially from the point of view of the growth. Obviously, better global conditions would be good for us, but this is something that is hard to achieve.
But we have still a lot of things in our hands. It is so-called famous Draghi report and so on. So I wonder your assessment, how, at which areas you think that we are sufficiently progressing and where we should do much more.
And secondly, what would be impact on the monetary policy in the future if we succeed in this agenda?
Christine Lagarde
Sorry, I did not understand the last part of your question. The impact of...
Luděk Niedermayer
I mean that if we are able to achieve better sustainable growth, let's say potential growth, how it would be reflected in the monetary policy.
Christine Lagarde
So on growth, once again, we have revised slightly down 0.8 in '26, 1.2 in '27 and 1.5 in '28. This is the revision that we have and it's predicated on the monetary policy decisions that we have made in June and on the inflation outlook and GDP outlook that was produced by the overall Eurosystem staff. Is that sufficient progress?
Well, more would be much appreciated, I'm sure, by all our citizens because with more growth things are much easier in multiple respects, whether you look at jobs, whether you look at investment, whether you look at the monetary policy decision that we make, it's helpful in each and every respect. I think there is one area which we have not yet discussed at this stage of my hearing, and that's in the area of what active energy policies we put in place in Europe in order to respond to the dependence and the lack of sovereignty that we have in that regard. And, you know, I don't often do that because we look at aggregate numbers, but when I look at particular Member States' results and when I try to associate that with their energy policy, there is a clear link.
When you look at growth in Spain, you look at growth in Portugal, for instance, you look at the price of electricity in these two countries and the effort that they have put in place in order to change the energy mix, it's pretty obvious that there is a correlation between the two.
And I would hope that not only these two of, you know, France, my country, France for that matter, thanks to the nuclear investments that have been made over the course of the last 50 years or so, finds itself in in a decent energy price position, which does not necessarily translate in in growth of GDP numbers, at least as of as of now. But I think this is an area where policymakers outside the ECB can can play a role in order to deliver more growth that would be helpful, as I said, on all accounts: jobs, investment, monetary policy, inflation. Thank you.
Thank you very much, Chair. First of all, thanks to your words on the single currency package. We definitely need projects for the future where we are sovereign and sustainable.
Evelyn Regner
For my question, I will switch right now into German. Energie- und Lebensmittelinflation trifft Frauen strukturell härter und damit natürlich auch die von der EZB erhöhten Zinsen. Frauen haben niedrigere Einkommen, mehr Teilzeitarbeit, mehr Verantwortung für Haushalt und Care-Arbeit und deshalb geben sie natürlich einen größeren Anteil ihres Einkommens für die Grundversorgung aus. Gleichzeitig trifft ein Abschwung durch steigende Kreditkosten den öffentlichen Sektor und soziale Dienste besonders stark, also genau jene Bereiche, in denen Frauen sowohl als Beschäftigte als auch Nutzerinnen überrepräsentiert sind.
Und meine Frage in diesem Zusammenhang: Ist es nicht an der Zeit, die Verteilungswirkungen systematisch in die geldpolitische Folgenabschätzung zu integrieren?
Christine Lagarde
Well, thank you so much. That's a really interesting question, actually. And I will be perfectly blunt with you. I don't know that we are doing that at all. Maybe we do, but I think it is really important for the reasons that you've mentioned.
Because the spending capacity, the analytical capacity of price increases in particular is more acute from women than men in general.
And obviously there are multiple exceptions and I would not dream of categorizing women doing this, men doing that, because there is a great, it's much more blurred than we think.
But I'm certain that the inflation expectations in particular is assessed in a different way by women than by men. Second is, you know, I'm taking you back to my old days when I was head of the IMF, where we pushed gender budgeting very strongly in order to have an active determination as to how sovereigns spend money and where they direct their budgeting, taking into account the differences between women's contribution to the economy and men's contribution to the economy, especially if they have as their objective a better representation of both genders. But I promise to get back to you because I don't know whether we do that or not, and I think it's a really interesting proposal. Thank you.
Dirk Gotink
Thank you very much, Chair, and thank you, Ms. Lagarde, it's always great to have you here.
And I share the, well, basically the understanding of the ECB's decisions over the past weeks. I have a question that relates to, it was already brought up by my Italian colleague, Mr. Crosetto, it's the balance between monetary and fiscal policy. Because obviously everyone is trying to deal with the fallout of the energy situation.
And what the Commission then does is it gives out basically free lunch to be able to finance energy projects back home in some member states. Member states that are heavily indebted and in this case, especially if we speak of Italy. They receive almost 200 billion in next generation funding of which a quarter goes to energy, renewable energy and energy sector investments. So and now we're at the same time also giving more leeway to somehow not take that into account in their statistics. The European Fiscal Board says it's highly questionable.
I would like your reaction to that and to what extent fiscal policy in Europe narrows your path on a monetary level. Thank you.
Christine Lagarde
Thank you very much for your question. What I was a little bit confused about is your reference to the what you call the free lunch, which I thought referred to the escape, which I understand is capped at 0.3 in the first year and a total of 0.6 of GDP and focused on energy expenses in order to change the energy mix, or whether you were referring to the whole package under the RFF, which is... So you're referring to the small escape clause. Is that right?
It's not small.
Christine Lagarde
Yeah, no, I know, but it's I know, by all accounts it's not small, but at least it's capped and it should not exceed an overall of 1.5% of European GDP as well if I understand correctly.
I, you know, I cannot opine on that because I think it obeys a direction that is otherwise determined by the Commission, by the Council, in order to move faster in the energy transition that was predicated and which I think has to be accelerated in view of the dependency that we are under. Now, the second point I think that your question brings about is how is that, how is it spent? How is it controlled in order to satisfy the requirement of this energy mix which will accelerate the transition towards more renewable? And this again is not within the remit of the ECB. The third point that you make, which is more relevant, is: is this fiscal approach likely to reduce the monetary policy space that we have?
And the answer to that is that we will not be fiscally dominated and we will determine our monetary policy on the basis of our mandate and we will take the decisions that we have to take in that respect.
Thank you. For PFE, Monsieur Pamphi.
Pierre Pimpie
Oui. Alors donc là donc on traite des taux courts.
Mais je crois que ce qui compte aussi ce sont les taux longs. Et donc est-ce que le fait de relever les taux courts ce n'est pas donc aussi une façon d'assouplir les taux longs ou donc à quel stade est-ce que vous jugez qu'il faudra reprendre le QE c'est-à-dire le et bien le quantitative easing. Voilà.
Christine Lagarde
Merci. Merci beaucoup. And I think there is a link actually between what we do in relation to short-term rate.
And you are correct that when we take an interest rate decision, when we move the DFR by 25 basis points, it impacts the short-term rate predominantly. But I would also contend that it has an impact on the long-term interest rates. Because if we did not make a decision of that nature, then markets would assume that we are going to be complacent.
And it's very likely that if that is the case, the risk premium associated with the long-term definition and setting by markets would take it into account and would probably increase as a result. So I think that the interest rate decision that applies directly to the short term also impacts at the long end of the curve as well.
Thank you. For Renew, Ludovít Ódor.
Ľudovít Ódor
Thank you. I have two relatively short questions.
The first one is that we are still talking about the problems with supply side shocks and especially in the energy sector it always transforms into big differences in member states with relation to inflation because many countries have very different price mechanisms in the energy sector. So if there is this higher dispersion, do you think it affects the effectiveness of monetary policy because you know if in one country it's 6, 7, 8% inflation and in other country 2, then it's your job is even harder. And the second question is that in recent days, days, maybe even months, we've been watching a bit of a problem in the relations between the US and the EU. So is that applies also to the ECB-Fed relationships with the new governor?
Christine Lagarde
Thank you very much for your two questions. So on the first one, you are right that we have always faced a differential of inflation between the member states. And that differential has narrowed markedly to below the pre-pandemic averages for overall inflation in February and in March this year. But again, now it has reopened a bit in the latest numbers that we've seen in April and May. So, you know, you know the business because you're a former central bank governor yourself.
We we cannot have a monetary policy that is applicable on a per member state basis.
We have to define our monetary policy with reference to the entire euro area and we have to analyze the transmission of our monetary policy stance throughout all the member states. And we do that, we try to measure how it impacts lending, both in terms of volumes, in terms of transmission of rates, and that differential is kept at a reasonable level so far, but we do see a little widening of it. The relationship between central banks, I think, operates in a different environment than the political relationships, probably because we are all guided by the same objective of price stability, and being driven by the same objective, I think, helps understand the complexity of what we do, the differences of the economic background against which we operate. And I can assure you that certainly from a personal point of view, my relationship with the new chair of the Fed is very good. I've known him for a long time and it's a very good relationship.
Thank you.
Je vais me donner la parole très rapidement. Il y a tout un débat aujourd'hui sur le rôle international de l'euro. On parle beaucoup de la question des stablecoins alors qu'on voit bien que les Américains ont un avantage comparatif énorme puisque 99 % du marché est détenu par des acteurs américains. Il y a un peu un éléphant dans la pièce qui s'appelle l'actif sûr.
Vous avez mentionné la question de la défense et tout un tas d'autres choses. Est-ce que l'un des moyens pour faire en sorte que l'euro ait un rôle international à jouer, est-ce que c'est pas un actif sûr quelque part qu'il manque plus que des stablecoins si un jour ils arrivent au niveau européen ?
Christine Lagarde
Thank you very much, Madam President. I concur with your analysis of the stablecoins market with one exception, which is that while 99% is denominated in US dollar, not all players are US actors.
And in particular, one of the two is actually headquartered outside the United States and escapes the governing law of the US, in particular the Genius Act. So, without naming any of the two, it's the largest of the two is actually located outside and registered outside the United States, which I think reinforces your point. The second comment I would make is that I like the way in which you characterized an asset against an asset, because I would contend that to assume that stablecoins is a coin and therefore a currency is slightly abusive.
I think like you do, that it is an asset, which has depegged multiple times, and which cannot be really characterized as a currency. It does not satisfy the three criteria of what a currency is. Safe assets, yes, and I think it's, it would be very much required in the context of Capital Market Union, which is badly needed, which has been called for by the Draghi report, which has been called for by the Letta report, and which I think is only going to be amplified and made stronger and safer if there are safe assets of a European nature. Yes.
Damian Boeselager
Yes, thank you, President. I have two very short questions. The first one is that, as you know, we were quite shocked by the anthropic cutting of the LLMs for Europe and others, and it just sheds light again on the vulnerabilities and the dependencies that we have also when it comes to our financial stability. How do you see that? And the second one is on the Draghi billions, which you also just mentioned once again.
Even if all the acts were concluded that are currently on the table, I don't really see innovation capital coming in great masses. So I was just wondering what measures are still missing in order to incentivize investment.
Do pensions for example have to invest more in venture capital as well? Thank you.
Christine Lagarde
Thank you very much for your two questions. I'll start with the latter. You know I applaud the efforts undertaken by the Commission and by anybody who cares to listen to the Draghi recommendations and the Letta recommendations.
I think they should, they go hand in hand and while the Draghi report is of a much broader scope, the improvements of the competitiveness of the internal market and the removal of obstacles along the way of moving goods, services, capital within the European Union are very important as well. But if I had to pick one and actually deliver on that one in addition or as an accelerator that I would favor, it would be the saving and investment unions or, you know, what I call the capital market union.
Because I think that and that touches on the first question that you asked. What is badly needed to respond to the inventiveness, the creativity, the talent and the markets that we have when it comes to LLM products, the like of Mistral, the like of Chat 5.5, the likes of whatever China will introduce on on the global market, it is capital. And we need to be able to harness not only public money, because there is a limit to how much public money can be mobilized, but we have to mobilize private capital in order to sustain and to encourage this this capacity we have in Europe. And that would be a response to what has clearly been a frustration of many in experiencing some LLMs in the last few days. Thank you.
Thank you, catch eyes. I will give the floor to Fabio De Masi for one minute.
Fabio De Masi
Thank you very much. My question also relates to the dangers emanating from a potential AI bubble, but also some very disruptive AI models. The IMF has commissioned a report warned against bigger financial crisis risks. Would you did you create any kind of let's say task force within the European Central Bank to look into these risks firstly? And secondly, do you see the need for strategic public intervention, let's say also when it comes to computer farms and own capacities in Europe?
Lastly, let me use my remaining 15 seconds for a short comment. Your response was that you regret that you have to react to supply-side shocks with demand-hampering measures like interest rate hikes, but you have to keep in check inflation expectations. I just want to say that also inflation expectations are not uncontested, also among central bankers, just to mention Jeremy B. Rudd, a senior economist of the Federal Reserve, who has warned that it rests on very shaky foundations. Thank you very much.
Christine Lagarde
Thank you very much for your two questions.
On the first one, I think it, I'm tempted to give it a twofold interpretation. There is the AI bubble formation, which has been identified by not only the IMF, but also the financial stability report that we publish on a regular basis, in which the sudden market price correction is identified as one of the three key risks that need to be watched going forward.
So the, we have an entire business area within the ECB that is looking at those financial risks, as well as, you know, other matters, but the financial stability risks associated with tech bubble, I would not call it AI bubble, but tech bubble is, is one of them. I think there is another aspect to this AI danger, which has to do with the question that Mr. Fernandez was, was putting to me, which has to do with sovereignty and with autonomy.
And the fact that in a sector where market capitalization is very high, where capital draining is huge, and where the prospect of improved productivity or significant transformation is to be demonstrated and might very well be demonstrated, there is an element of uncertainty about it, which is a vulnerability, especially if we don't control it and if we don't have alternative to that. On the supply shock, you know, as I said, I tried to explain how both on the account of propagation of the shock throughout the economy and the consequences it could have, the potential second-round effect that we do not yet see for the moment, I think that inflation expectations do play a role.
I know that it's not universally accepted, but I think we at the ECB contend that inflation expectations actually matter when it comes to demand going forward and formation of demand. Thank you.
Lefteris Nikolaou-Alavanos
Thank you, dear chair. Thank you. Ms Lagarde, I will make the question in Greek, so. Βάσει των προβλέψεων τόσο του Eurogroup όσο και των δικών σας, τα βασικά χαρακτηριστικά της οικονομίας της Ευρωπαϊκής Ένωσης είναι αβεβαιότητα, χαμηλές αποδόσεις της καπιταλιστικής οικονομίας, στασιμοπληθωρισμός.
Η συσσώρευση χρέους που επιταχύνεται από τους πολεμικούς τυχοδιωκτισμούς Ευρωπαϊκής Ένωσης και ΗΠΑ και στην Ουκρανία, στη Μέση Ανατολή, μαρτυρά μια επερχόμενη καπιταλιστική κρίση. Βεβαίως δεν χάνουν όλοι. Χάνουν οι εργαζόμενοι που φορτώνονται τα βάρη της πολεμικής οικονομίας στην ακρίβεια, τον πληθωρισμό, τα μειωμένα εισοδήματα, ενώ κερδίζουν οι όμιλοι της πολεμικής βιομηχανίας, της ενέργειας, των κρίσιμων υλικών και οι τραπεζικοί όμιλοι βεβαίως, οι οποίοι ευνοούνται και από την αύξηση των επιτοκίων, όπως αυτές που ανακοινώσατε πριν από μερικές μέρες. Η νέα αύξηση μάλιστα μεταφράζεται και σε ακριβότερες δόσεις στα λαϊκά νοικοκυριά και άλλη πίεση στο εισόδημά τους, το οποίο είναι ήδη εξανεμισμένο, αδυναμία ανταπεξέλθουν στις υποχρεώσεις, κοκκίνισμα δανείων και δεκάδες χιλιάδες πλειστηριασμούς πρώτης κατοικίας.
Θέλω ένα σχόλιο δικό σας πάνω σε αυτή την πραγματικότητα που ζουν τα εργατικά λαϊκά νοικοκυριά.
Christine Lagarde
Thank you very much for your question because it really addresses a point that we are particularly attentive to. And that's the burden of inflation and the allocation of the burden, whether it falls largely on corporate, whether it falls on labor.
So is it the capital or is it the labor that actually bears the brunt of the of this external supply shock that our economies are suffering? And we are particularly attentive because we've been through 22, 23, 24 where in the first place, you know, unit profit increased and margins were then later squeezed to the benefit of unit labor. This is not what we are seeing at the moment. We are not seeing an increase in margins. We're not seeing an increase in unit margin either.
But we are very attentive to it because it's clear that labor are suffering as a result. And we just want to make sure that the allocation is in check and that we can alert policymakers about this if it has to be addressed by them.
On the wages front, what we are seeing, and we know that there is a lag between the numbers that we are seeing, no matter how sophisticated our indicators have been, and the actual impact on the numbers. And what we are seeing at the moment is a moderation in the increase of wages. If we look at compensation per employee, for instance, which is a traditional, pretty standard and easy measure to compare, there has been a decline. And the latest number is 2.6% increase in compensation per employee. I think it's not sufficient to just look at that one.
We have to look at the other trackers that we have built over the course of the last few years to anticipate where wages are going and how they respond to inflation. But for the moment, it's more a track and a trend of moderation that we are seeing in the numbers.
Thank you. I have two people on my list. Ms. Penkova for the S&D.
Tsvetelina Penkova
Thank you. Thank you, Chair. Dear President Lagarde, pleasure for being here with you as always.
It seems that the adverse supply shocks are becoming a new norm rather than an exception. Of course, the inflationary pressure across Europe is worrying our citizens. Another key trend to observe is also that within the Eurozone, we see very different levels of inflation, like if the average is about 3%, there's still countries where it reaches 6%, which is very different, difficult conversation to be having. There are a few countries running very high budget deficits, far above the 3% at the moment. So those discrepancies are creating a lot of price, social and political tension within the member states.
So I have two questions. First of all, when it comes to the interest rate hike, it seems that there is an expectation for one more by the year end. Would you be willing to consider a third one? And the second question, fiscal policies, a bit more stronger emphasis probably and how can we help on that? Thank you.
Christine Lagarde
Well thank you for your very pointed questions.
I will not address your first question because as I have said, we will decide monetary policy on a meeting-by-meeting basis, being data-dependent and without having any preset rate paths, and I will stick to that because that's the determination that we've made and that's our stance. On fiscal policy, I think we've been very clear that any fiscal measures that are intended to respond to the shock, to the energy shock, the supply shock that we have described, that those measures have to be, as I call them, triple-T. They have to be temporary, they have to be targeted, and they have to be tailored. I think it's really for the Commission to determine whether the measures that are being decided by Member States are actually complying with the triple-Ts.
From what I've heard from the Commission, it's not always the case. And while the volume of support has been limited so far, we are at 0.125, if I recall roughly, of additional special support, but it's not triple T compliant on all accounts. And you know, if I can use this forum to remind Member States that it should be, it should be temporary, it should be targeted, it should be tailored. So when there is a shock in reverse, then these measures can be reversed as well and the fiscal position of Member States can be, can be in a better shape. Thank you.
Thank you. And for EPP, Mr. Raptias.
Georgios Aftias
Dear colleagues, I will talk to Greek. Θα είμαι πολύ γρήγορος, κυρία Lagarde. Πρώτον, πού βρισκόμαστε με το ψηφιακό ευρώ; Τι θα γίνει με το ρευστό; Ποια τα οφέλη για νοικοκυριά και επιχειρήσεις;
Και κάτι άλλο. Όση ώρα μιλούσατε σας θυμάμαι όταν η Ελλάδα έδινε μάχη για να κρατηθεί στο ευρώ και εσείς συμβάλατε πάρα πολύ.
Πώς έγινε αυτή η μεταβολή και από μαύρο πρόβατο η Ελλάδα έγινε ένα πειθαρχημένο μέλος της Ευρώπης; Ευχαριστώ.
Christine Lagarde
Well, thank you so much for your question. One, I want to turn the question over to you.
Where are we on the digital euro? Hopefully, by the end of the day tomorrow, we will know a lot better where we are. And I hope we are in a good place in order to start the next stage of the work, which is going to be of a more technical nature in order to run the pilot function that we need to have in place in order to really make sure that the experience of all our compatriots in Europe is a good experience, because I don't think we have the chance to—you don't get a second chance to make a good impression. It has to be a good experience for all of them. And I very much look forward to that phase.
So, I'm not putting any pressure on you, but this outcome tomorrow is really important. I'm not sure exactly what is the point of view—exactly what you mean by the liquid money. But suffice to say that there is plenty of liquidity in the system. Okay, you want to clarify that, please.
Georgios Aftias
Αν θα λειτουργεί το ψηφιακό ευρώ και παράλληλα τα ρευστά. Αν θα λειτουργεί το ψηφιακό ευρώ παράλληλα με το ρευστό δηλαδή να μπορεί ο πολίτης να κάνει χρήση του ψηφιακού και του ρευστού. Ευχαριστώ.
Christine Lagarde
So the answer to your question if it is will you push the digital euro while at the same time having banknotes the answer is a resounding yes. Yes and yes. Banknotes are here to stay for as long as our compatriots in Europe want to use them the banknotes will be here. So one does not exclude the other absolutely not.
Aurore Lalucq
That was a clear answer. Thank you so much. You want a few minutes to conclude? Non? Eh bien, merci beaucoup pour ce cet intense dialogue monétaire.
C'était à vrai dire opportun de nommer votre venue tant pour la question du dialogue monétaire que pour le vote qui va avoir lieu demain. Je crois que ce que ce dialogue a mis en exergue, c'est que le coût de l'inaction est beaucoup plus cher que le coût de l'action.
Et on le voit aujourd'hui avec la question de la transition énergétique par exemple, mais aussi la question de la défense où à chaque fois qu'on n'agit pas, eh bien on est face à des chocs extérieurs, des chocs externes, des chocs inflationnistes. Et donc demain, il y a un vote qui, je l'espère, va permettre de faire en sorte que le coût de l'action sera moins cher que le coût de l'inaction. Et ce sera sur le vote sur l'euro numérique. Et je tiens moi aussi à dire un grand bravo aux rapporteurs et à toutes les équipes de négociation. Et donc à très bientôt pour ce vote, chers membres de la commission, et à très bientôt, Madame la Présidente, pour notre prochain dialogue monétaire qui devrait se tenir le 28 septembre.
Et puis on viendra vous rencontrer à la Banque centrale européenne le 21 septembre. Merci beaucoup.
Vous y êtes les bienvenus, on vous y attend de pied ferme avec un bon déjeuner.
Aurore Lalucq
So, welcome back, and I am very pleased to welcome Mr. Pierre Gramegna, Managing Director of the European Stability Mechanism, for this exchange of views. As you may know, the ESM is an intergovernmental organization founded in 2012 by Euro area member states. Its mission is to safeguard financial stability by supporting Euro countries in preventing and overcoming financial crises.
This discussion takes place within the framework of the 2024 memorandum of cooperation between the European Parliament and the ESM, which aims to strengthen the inter-institutional dialogue and deepen cooperation between our institutions. Europe continues to face significant structural challenges that weigh on productivity and long-term economic performance. Although the single market remains one of Europe's greatest achievements, remaining internal barriers still fragment economic activity.
Addressing these obstacles is becoming even more urgent as aging population, climate change, the digital transition and rising defense expenditure place growing pressure on public finances and long-term sustainability. In this challenging environment, the ESM plays a crucial role safeguarding the financial stability of the euro area by providing financial assistance to member states and helping to prevent potential systemic risk. Today, we are looking forward to hearing from you, dear Pierre, on the recently published ESM 2025 annual report and on the key activities of your organization. So I will give you the floor for your opening statement, let's say seven minutes, and then there will be a Q&A session with the ECON members.
Welcome in the ECON Committee.
Pierre Gramegna
Madam Chair, honorable members, dear all, it's a pleasure to be here with you today to present to you the annual report, which also contains the accounts and financial position of the ESM, to share that with you and exchange views with you. This is my first appearance before the ECON Committee since the Memorandum of Cooperation between the European Parliament and ESM was signed in 2024, and I had the privilege to sign that with you. And it was the result of a couple of meetings that we had to prepare it, and I'm glad that today we have this opportunity.
We will also have the opportunity to have a mission of the ECON to Luxembourg in September at the headquarters of the ESM and I think this is also a very efficient way to exchange views and to learn more about each other. The memorandum of understanding established a more structured framework for cooperation and exchanging of views.
The ESM is an intergovernmental institution but it is part of a broader European institutional and democratic framework. Regular engagement with this committee helps ensure transparency, accountability and a shared understanding of how the ESM contributes to safeguarding the stability of the euro area. Just 11 days ago at our annual meeting in Luxembourg, the ESM Board of Governors approved the annual report which has since been officially transmitted to the European Parliament.
The Board of Governors, which comprises the ministers of finance of the euro area members, also reviewed the institution's recent work and discussed the challenges that Europe faces in a more uncertain and shock-prone world. The annual report shows that in 2025, the ESM operated in an environment marked by heightened geopolitical tensions, renewed market volatility, and increasing pressure on the rules-based multilateral order. In that context, one message stands out clearly: the euro area and the ESM have remained resilient.
The ESM delivered a record net profit of 1 billion 970 million euro in 2023, the highest result since inception. This result was supported both by higher interest rates and by the performance of the ESM's managers who outperformed the benchmarks while remaining prudent. This growth in the ESM's reserves strengthens our capacity to respond in times of market stress and uncertainty. With 81 billion euro paid-in capital and a reserve fund of around 7.2 billion euro, the ESM is the most capitalized international financial institution in the world.
That capital is not used directly for lending. It underpins our triple-A rating and allows us to raise funds at very low cost. Our maximum lending capacity of 500 billion, of which 433 billion euro are available, is a form of insurance against financial instability. And like a good insurance does, its value lies in the fact that it is there when and if needed.
But beyond the figures, the annual report reflects something more fundamental: the continued relevance of a common institution built on resilience, solidarity, and credibility. This is why the ESM matters, because there are not abstract principles but practical requirements for safeguarding financial stability. Let me start by insisting on resilience. That means having the institutional and financial strength to respond when conditions deteriorate. This is reflected in the ESM's balance sheet, its lending capacity, and its ability to act in support of euro area stability, which contribute to keeping sovereign spreads contained.
Solidarity, second feature, remains central. The ESM continues to serve as an anchor of stability for its members, underpinned by shared responsibility and mutual trust. And third, credibility. This credibility is built through strong financial results, prudent risk management and close cooperation with our European and international partners. The ESM and the EFSF, which is under ESM management, are an integral part of Europe's economic and institutional architecture.
The credibility of the euro area and of the ESM as its safety net continues to attract new members. When ESM was inaugurated in 2012, 17 countries were sitting around the table. Today, the euro area counts 21 countries. Following Bulgaria's ratification of the ESM treaty, its accession as the 21st member of the ESM will become effective next Monday, on the 29th of June.
This is an important and positive development for both Bulgaria and the euro area as a whole. In this year's annual meeting, we also had the privilege of welcoming, alongside the ECB representative and European Commissioner Valdis Dombrovskis, also the IMF Managing Director Kristalina Georgieva for an exchange on global challenges. She stressed the importance of strong cooperation between the IMF and regional financial arrangements such as the ESM as a cornerstone of the global financial safety net. In a more shock-prone world, that cooperation matters for crisis preparedness and for safeguarding financial stability. That discussion was particularly timely.
The environment we face today is different from the one in which the ESM was created. Europe is exposed to new sources of risk and financial stability can be affected by shocks that are geopolitical, economic, financial or of strategic nature. This is why the debate on the adequacy of crisis prevention and crisis response tools is so important. At the annual meeting, I recalled the progress made in the follow-up to the ESM toolkit review, including work on precautionary instruments and on the indirect recapitalization instrument.
At the same time, important questions remain open on how Europe can best equip itself for more volatile world situations. In that debate, the ESM stands ready to contribute constructively and pragmatically. Let me conclude with a simple point. The 2023 annual report is not only a record of a successful financial year for the ESM, it is also a reminder that Europe needs strong, credible, and agile common institutions.
In a world of growing uncertainty, the ESM remains resilient, solidary, and ready to act in support of euro area stability. I'm looking forward to your comments and questions.
Thank you, dear Pierre, and I will open the floor and give the floor to Markus Ferber for one minute and a half.
Markus Ferber
Ja, vielen Dank und vielen Dank für diesen Erfolgsbericht, der aber doch ein bisschen getrübt ist, weil im November 2020 hat sich ja die Eurozone auf eine Reform des ESM-Vertrags verständigt, um den einheitlichen Abwicklungsfonds als Letztsicherung für die Bankenabwicklung zu verankern. Das ist bisher von einem Eurostaat noch nicht ratifiziert. Die Kommission hat in diesem Jahr erneut auf die Überführung des ESM in den EU-Rechtsrahmen plädiert. Könnten Sie uns ein bisschen was erzählen, ob es hier Fortschritte gibt?
Und dann habe ich noch ein zweites Thema. Im April diesen Jahres hat sich der ESM und die EIOPA auf ein gemeinsames Diskussionspapier verständigt, das sich mit dem Management der Risiken von Naturkatastrophen auseinandersetzt. Und dabei wird eine Versicherungslücke von rund 75 % auf der Basis historischer Schäden beziffert. Und dieses Papier schlägt einen Risikopool auf europäischer Ebene vor, zwischen 10 und 65 Milliarden Euro. Und implizit, nicht richtig, aber impliziert ja doch gesagt, dass der ESM diese Letztsicherung einnehmen könnte.
Warum müssen wir uns hier mit diesen Fragen auseinandersetzen?
Warum beschäftigt sich der ESM mit diesen Fragen? Haben Sie vor, Ihr Mandat auf dieser Ebene zu erweitern? Vielen Dank.
Pierre Gramegna
Thank you for your questions.
Obviously two questions. One is about the amendment of the ESM treaty which was negotiated over the years back in the last decade and I was part of the negotiation as a finance minister as you well know and it was signed and then ratified by most countries except for one. Let me first say that the countries that joined the ESM at a later stage including Croatia and Bulgaria which have are now part or about to become part Bulgaria next week of the ESM have ratified the existing treaty and the amended treaty. So we have at the present juncture 20 countries that have ratified and one country that hasn't ratified.
So as long as that country doesn't ratify, the treaty, the amended treaty, cannot be made operational. This is unfortunate because in that amended treaty there is one major improvement which would be an additional tool for the ESM to be the backstop of the Single Resolution Fund, and we have also earmarked some amounts of money to be reserved for that function. Now, you are all aware that ratifying a treaty is the privilege and the sovereignty of a country. So I am regularly in contact with the Italian government about this.
In fact, I was also in Rome last Friday to discuss this item and other items, and it lies in the hand of the Italian government and the Italian parliament to decide to ratify or not to ratify. This being said, what is important is that despite this absence of ratification by Italy, the ESM treaty is playing out fully and is operational apart from that backstop.
So I think it's important also to underline that we are there, present, and that despite this absence of the amended treaty, this has no impact on our existence or on our many tools that we have. On your second question, it is not the intention to signal any necessity to enlarge the mandate of the ESM. But we as ESM have two main tasks.
One is to support countries when they are facing financial difficulties to refinance their debt, meaning they have difficulties to access financial markets, as it happened in the last decade. So that what you would call the crisis resolution function on the one hand. And the other one is to prevent crisis. And I think it is accepted and recognized that the precautionary instruments that we have, which are in the treaty, and preventing risks and analyzing the risks is a very important one. And that's why we dedicate some time and some research to analyze which risks exist.
And one of the risks that we have identified together with EIOPA, obviously they are gathering all the insurance companies, we recognize that the risk of climate change on public finances is growing with time. And only a quarter of all natural catastrophe risks or other climate change risks can be insured in today's world. So we have a financial gap in terms of what insurances can do.
So that research that we're doing together with ESM is saying that eventually one could imagine a setup which resembles the ESM to cover the 75% that cannot be done. But the fact that we participate in this research and analyzing the preventive role, not, sorry, and analyzing the potential of these consequences, I think is totally in the remit of our work. So in a short, shorter answer, we are not claiming here that the ESM should have that role. We are just finger pointing that climate change can induce risks of financial stability.
Thank you. For the S&D, Jonás Fernández.
Jonás Fernández
Un placer tenerle aquí, bienvenido. La verdad es que cuando he tenido que explicar en los últimos años la respuesta de política económica de la Unión Europea ante la crisis derivada de la COVID, siempre he insistido mucho en las diferencias en cómo Europa abordó la crisis financiera y fiscal de 2010, a partir de la cual se funda el ESM, y la crisis generada por la COVID, a partir de la cual logramos poner en pie el NextGenerationEU financiado con deuda solidaria y deuda comunitaria.
De alguna manera creo que una estrategia y la otra son distintas y en mi opinión en el futuro deberíamos seguir más el ejemplo del Next Generation que créditos individuales a los estados a través del ESM mediante condicionalidad. Pero bueno, esta es mi opinión. Dicho esto, usted ha hecho referencia a las dificultades para revisar el tratado ante el retraso en la ratificación en Italia y también me gustaría indicar que en la crisis de la COVID ustedes crearon una línea precautoria sin condicionalidad que ningún estado quiso solicitar.
Me pregunto si el actual MEDE en su papel de backstop del fondo de resolución bancario no acaba de encontrar acomodo ante el retraso en la ratificación del nuevo tratado. Que en la crisis de la COVID puso en pie una línea precautoria para ayudar a los Estados que ningún país quiso solicitar.
¿Cuál es el futuro de la institución y en qué momento podamos comunitarizarla o no, o cualquier otra vía que podamos pensar para viabilizar la institución o no? Gracias.
Pierre Gramegna
Thank you. So, as you rightly highlighted, the ESM had proposed back in 2020 a special tool which was called Pandemic Crisis Support.
And this instrument would have had as a conditionality that if you were to access that tool, you would have to commit to spend the money or do the spend the money and then finance the expenditures for health purposes. This instrument was one of the answers to the COVID crisis next to NGEU, the SURE program, and in the end was never used. It was not used and this instrument has also been canceled two years later. So that event showed that inside the existing treaty, there is some flexibility, I would call it flexibility, or there are ways and means to design tools that can answer crisis.
Now the major difference between what the ESM can offer and what NGEU can offer is that one, the ESM is intergovernmental, so it's not EU law. Second, the ESM can only extend loans and not grants or subsidies. So I think these are the two major differences.
The third one you could say is the conditionality, which also is of a different nature if you compare NGEU with the ESM, although, as I've just said in the beginning, the conditionality here was in a way linked to the type of crisis that we had, a health crisis. You, and that would be my first answer. The second question was, what about the ESM becoming a wider institution with as many members as the European Union? Well, for that to happen, the six countries that have not yet reached the stage where they would like politically or economically to join the euro area depends on those countries. So as long as we have countries which are outside the euro area, we will not have the same membership.
But apart from that, apart from the membership, we are for the time being an intergovernmental institution, so it's a different way of functioning. And the main difference is that is that the ESM can only take decisions or major decisions by consensus. Whilst in Europe, as you all know, there's different mechanism, different set of laws depending on the type of decisions that you take. So we as management obviously have to work in the remit of the treaty as is.
Thank you. For Renew, Ludovít Ódor.
Ľudovít Ódor
There are not too many people in the room, which is a good sign because, you know, otherwise in crisis times it can be overcrowded here. But I also would say that there are important developments which made you less relevant. I will try to explain it. The first one is, of course, the various monetary policy unconventional measures which parked in the ECB big chunk of government debt in the euro area. And there is still more than three trillions there.
The second one already mentioned NGEU that actually governments were able to spend a bit more than just from their own budgets. So that is an additional money which was there, so not creating additional impact on their budgets. So there are two camps actually.
First one, they are saying that with this new instrument at the ECB, the conditionality requirement will be never or not likely tested in the near future because there are also unconditional means together with the NGEU funding. And the second, there are people who are saying that actually if there is a move towards more common debt, maybe the ESM can play a role as a kind of a debt and liquidity management agency for the euro area. I'm not judging these proposals, I'm just curious what are your views on these two ideas.
Pierre Gramegna
Thank you. Thank you very much for your question. I agree with you, it's excellent news that there are so few members of European Parliament in the room. I regret it nevertheless.
I would have been happy to see more and engage because what we're discussing is extremely important. It would deserve probably hours of discussion, what is better and what how the future will look like. But let's look at it historically. The ESM was born in the midst of a financial crisis. We did not have a rescue fund in Europe, so Europe once again was able to find a a smart institutional solution that had been not really thought about.
When you think about it, it's quite remarkable that we created a common currency in 1999 without having a lender of last resort. So in the emergency, we created the ESM. In the next emergency, which was COVID, we went another route.
And I participated in those discussions and when we decided on April 9, 2020 all the measures of NGEU and SURE and also the EIB had the measures that were specifically done for the purpose and the pandemic crisis support for the ESM was also decided. We have chosen another route, you are right. And we have also chosen a more an unconventional route in terms of monetary policy. So, we have now more tools. How all these tools interact remains to a certain extent to be seen.
But the interaction with the European Central Bank is well known.
The European Central Bank has two major instruments that interact with the ESM, which is the Outright Monetary T-T stands for Transaction, huh? OMT, so Outright Monetary Transaction, which can only be triggered by the European Central Bank if a program is negotiated with a country and a debt sustainability is ensured. And the other one is the Transmission Protection Instrument, which is more recent, the TPI, where also the European Central Bank says this can only be looked at if debt sustainability assessment is done amongst other by the ESM. So you see there are interaction. Last but not least, I would say we all become wiser with time.
And we are definitely only to be called in as ESM if there is no other solution. And it is clear that it is easier for a country to go for a program like NGEU where half of the amounts available are grants, where the conditionality is extremely limited and it is also national programs mainly compared to going to the ESM where you have a heavier load of programs, especially if we're looking at resolving existing crisis.
If it were the precautionary loans for the ESM which have never been tested yet and never been asked for, you could say that's an instrument where there's room of maneuver for the ESM.
And last but not least, you asked me about, yes, the ESM is issuing bonds. We have issued bonds up to 300 billion to support five countries last decade. We're still refinancing that and issue more or less 25 billion bonds every year, issuing mostly in Euro and sometimes in dollar. So we have a huge expertise and if member countries would like us to play a bigger role in being issuer for others, this is something that is being mentioned once in a while also by the Commission in one documentation. But it is also important to keep in mind that the, how to say, the legal framework under which these bonds are emitted are of different nature depending on which institution we talk about.
Fernando Navarrete Rojas
Thank you, Chair, and thank you for attending this dialogue with the committee.
I would like to ask you on how the ESM is preparing for the future, in particular in prevention and management of banking crisis. So there's been a lot of discussion on how to deal with the so-called liquidity in resolution problem, and the ESM has come up as a potential solution.
So I would like to hear your vision on what role the ESM can perform in terms of solving the crisis in resolution problem in Europe, potentially with the backstop or providing counter-guarantees in favor of the Eurosystem. My second question is, for such a complex arrangement to be set up that includes different organizations, how much of a problem is that the ESM stands outside of the EU institutional framework and therefore the governance, as you explained, is different from the other institutions participated?
Third question, how dependent on the ratification of the new treaty is necessary, whether ratification of the new treaty is necessary for all these potential new arrangements for liquidity in resolution to take place, or can we, do we have enough flexibility within the current treaty? And final point, what is it, is there any limitation, hard limitation by which the ESM cannot provide the counter-guarantees directly in favor of the Single Resolution Board instead of having member states and then having the ESM with the precautionary line? Thank you.
Pierre Gramegna
Yes, so I, thanks for the excellent questions. Again, we would need more time to really go into details on your four questions. Let me try to answer most of it.
I speak about the issue of ratification at the end. So. What is foreseen in the amended treaty is that the ESM would be the backstop for the Single Resolution Fund. And that is foreseen in that treaty and it will be very easy to put that into operation if needed. That's why all this was done.
Now, historically, when this was negotiated, what we were focusing on more as member states was about needs of liquidity in case banks would have difficulties with their capital. Now, in the last years, the needs in terms of liquidity has slightly shifted and the attention has shifted towards liquidity, liquidity not necessarily in the capital, but the global need of liquidity.
And so that's why on top of what is foreseen in the amended treaty, there's this discussion where many players are involved, Commission, ECB, Single Resolution Fund and we are also in the loop in a kind of preliminary reflection to see how do we solve the weekend liquidity issue that happened with Credit Suisse. How do we have enough liquidity for that? And here the numbers are extremely high because for the Credit Suisse we're talking roughly 200 billion dollars or Swiss francs in one weekend. So these numbers are so high that we need a cooperation between institutions. So that's why all these institutions are working together and they are not of the similar nature.
I would say the answer is where there's a will, there's a way. If we consider, you consider tomorrow as European Parliament that it is good for Europe, and the answer for me it's clear, it is necessary for Europe to have the backstop that is in the amended treaty, to have eventually additional liquidity in case of liquidity issues of the weekend, if we can call them that way, then we will find a solution to have the different institution work together.
I agree with you.
Now, can the ESM play its role as backstop to the Single Resolution Fund without the treaty? Theoretically, one could think of looking into a plan B, but for the time being, there is plan A on the table, which is a very efficient way of achieving what we need to do. So going through another route would be much more cumbersome.
Aurore Lalucq
Merci. Je me donne la parole pour poser une question.
Alors j'écoute en original.
J'écoute en original, cher Pierre.
Aurore Lalucq
Il y a tout un débat aujourd'hui, on vient de l'avoir d'ailleurs avec Christine Lagarde, sur le rôle international de l'euro et la possibilité pour pouvoir y parvenir d'avoir un safe asset. Est-ce que vous, le spécialiste de la stabilité financière, est-ce qu'un actif sûr nous permettrait en fait d'acquérir un peu plus de stabilité financière, même si la stabilité financière va bien au niveau européen ? Et comment voyez-vous, puisque le rôle de l'ESM est très discuté, vous voyez, avec l'évolution, comment voyez-vous dans cette perspective aussi le rôle de l'ESM dans cette nouvelle architecture ? Moi je suis tout à fait en faveur de garder tous les outils qu'on a parce que c'est toujours dans les moments comme ça de d'euphorie que les crises peuvent arriver et qu'on a envie de simplifier, enlever des institutions, etc. Moi je pense qu'il faut au contraire tout pérenniser.
Mais est-ce que vous voyez une évolution de votre rôle aussi dans le contexte actuel ? Merci beaucoup.
Pierre Gramegna
So, I'm going to answer in English although my French is good enough. But as we're talking about finance, probably easier to keep the language of Shakespeare. European safe assets. I know it's been now in the mind of many. There have been lots of articles, lots of reflections.
I also attended recently a conference where a lot of good ideas come to the forefront.
I'm going to give you first my personal touch to it and then try to go more deeply into your question. For the time being, the European safe assets that we have is bonds of the European Investment Bank, bonds of the European Stability Mechanism and its predecessor EFSF, and bonds by the European Commission.
In the three cases, what happened historically is the following. There was a crisis or an emergency or, in the case of EIB, there was not a crisis or emergency, but there was a clear purpose back in the sixties to say we need to do these loans to support countries, to develop bankable projects, to innovate, and that's why we created the bonds. So in the three cases, we said the key is what we want to do with the money of Europe, and then we find a way to do it, and then we have these European safe assets. The discussion that has been triggered now over a couple of years is to say the European safe assets as such have a value. So because we lack the depth of financial markets compared to the dollar market, we say this is a big deficit.
Yes, it is. But for me, having a discussion we should have more European safe assets because this gives us slightly better rates, more liquidity is putting the cart in front of the horse. So I'm not sure it's going to help the discussion. Let's take defense.
Now, I say I take defense in general, not only viewed from ESM. If we want to do something on defense together in Europe, very vaguely said, should we say we need more European safe assets because it's good to have European safe assets and by the way, we should do that for defense? Does that make more sense than saying we have a huge issue on defense because we should do more together on defense? I, it's very vague what I say. And then they say, well, if we want to do it together, where do we find the money?
And then you could say, some say ESM could play a role in that.
The Letta report says that. The white paper of the Commission says we have now the SAFE program, 150 billion. If we get to the limit there, the ESM could play a role. Just to be very clear here. When this happens and we're being asked, we as management are very eager to work with the countries and those who have these ideas.
But it's not the management that decides if we're going to do that or not. It's an intergovernmental institution and we need consensus to do it. I think it's our responsibility as management to be open for ideas. I know some in the room here would find this very positive, some would be neutral, and some would find it terrible. But such is life.
But what we cannot do is just say we don't want to discuss it. So you see, your question allows me to say that I find pushing to the extreme the idea that we need to have European safe assets because it gives us a more liquid market, a more depth, is not such a good idea because in the end what you need is political consensus from most sides to say defense, I could have said climate crisis, or we could have said geopolitical turmoil, a war, or well, all these things that when you think of it as one common denominator.
And maybe if you allow me one more minute on this, I think this is very important. Many of us has the tendency to look at the ESM only through the lens of what was done in the last decade. And what do I mean by then, the lens of the last decade? The ESM was invented to support countries in need. And so we say the ESM is there if there's a financial crisis, then some countries have to do reform programs and then they get support.
So they think in that manner. And in such a situation, you can also say the country that has problems, they are self-inflicted because the country didn't have a good budget policy and so that's also why they need to reform their economy and so on. But COVID was different. COVID was different. COVID, everyone had a problem.
It was an external factor and that's why we did NGEU because everyone had a problem. But that's also why we did the pandemic crisis support because we wanted to insist on the fact it's not that someone is more respons- one country is more responsible than the other. It's just that it is an external factor that creates eventually the need for a common response. And I think if we integrated that precedent of COVID, external factor, there was a pandemic. We can take another external factor, the war in Ukraine, which led us to have the SAFE program.
Now defense, tomorrow defense is also an external factor. So how do we deal with external factors that create, potentially create financial instability? That is really the question that we should all ask ourselves.
And then opinions diverge. We as ESM, as management, have the following attitude: whatever the triggering effect is, an external factor, a national factor, a geopolitical one, you name it, and it has a potential of weakening the financial stability of the euro area, this is exactly in our remit.
Thank you. Any catch-the-eyes? No.
Pierre Gramegna
Well, I would like to say that I look forward to continue this discussion in Luxembourg in September, to receive your delegation.
Well, I would like to say that I look forward to continue this discussion in Luxembourg in September to receive your delegation, and I think it is in the best interest, and I will finish with that, it's in the best interest of Europe at this juncture to look into all the possibilities that exist. I mean, the ESM is the highest capitalized international financial institution in the world. My friends from school whom I meet, they tell me, Pierre, you're sitting on 500 billion euro, what the hell are you doing with it? And I tell them, this is not how it works.
This is not how it works. On the other hand, just saying we don't want to use it at all is the other extreme. So where can we have a smart combination? Where does it make sense eventually to use part of the capital that we have for precautionary instruments, for credit lines, to start something? I think that's where intellectually it becomes really interesting.
So not go for the extreme, the ones who'd like to finance projects with the ESM, we're not there to finance projects.
We're there to support countries. I think if we were to try to transform ESM in an institution that finance projects, I think the likelihood to have support of majority of countries is very low. But if we stay in the remit of financial instability risks, wherever they come from, if they have an impact on the financial stability of all the member states or some member states, that's also why we have capitalized this institution so much. So it's a way of looking at it in a smart way that stays in the spirit of the ESM.
I think that would be for me the most important message for you. And again, from our side, you will always receive an open ear to discuss it, what are the limits of what is possible and so on, but we will not sit there and say no.
Aurore Lalucq
Okay, good to know. So we'll be in Luxembourg very soon since no is not an answer. Thank you so much for your time and thank you for the exchange of view. And as you just mentioned, we'll be in your institution in September, right? In September.
Okay. Thank you so much.
Thanks a lot.
Aurore Lalucq
We now turn to the presentation of the draft opinion and the consideration of amendments on the general budget of the European Union for the financial year 2027. Our standing rapporteur for the file is Mr. Ferber for EPP. In line with established practice, the budgetary procedure for ECON follows two parallel procedures. An ECON opinion on the 2027 budget to be submitted to the lead committee BUDG outlining the political messages. Budgetary amendments to amend the figures in the draft budget 2027 as amended by the Council.
Similarly to the last exercise, the draft opinion on the 2027 budget will be voted before the summer break. However, the budgetary amendments can only be voted after the summer break, after the Council position becomes available on July 15. And I will now invite the rapporteur to present its draft opinion and views on the amendment table, and afterwards the shadow rapporteur to take the floor to elaborate on their political priorities. Please, Mr. Kyrtzos, the floor is yours for six minutes.
Georgios Aftias
Thank you. Dear colleagues, I will talk Greek.
Μόλις πριν από λίγη ώρα παρακολουθήσαμε την κυρία Λαγκάρντ να λέει δεν μπορώ να σας πω τίποτα για τα επιτόκια, δεν δεσμεύομαι για τα επιτόκια. Ζούμε λοιπόν σε μια περίοδο αστάθειας και αυτή η περίοδος αστάθειας λόγω του πολέμου πρέπει να μας δώσει μια προτεραιότητα.
Να φτιάξουμε μια Ευρώπη η οποία να αντέχει σε γεωπολιτικές εντάσεις, ενεργειακές προκλήσεις, αυξημένες οικονομικές πιέσεις και να στηρίζει νοικοκυριά και επιχειρήσεις. Για αυτό το λόγο αυτή η μακροοικονομική σταθερότητα πρέπει να είναι πρωτεύον στοιχείο, να ενισχυθεί η ανταγωνιστικότητά μας, να διευκολύνουμε τις μικρομεσαίες επιχειρήσεις στη χρηματοδότηση, να μειώσουμε τη γραφειοκρατία και επιτέλους να ανάψει ένα πράσινο φως στην τελική ευθεία για σημαντικότατη ανάπτυξη. Παράλληλα, θα πρέπει να προωθήσουμε την ένωση των αποταμιεύσεων και των επενδύσεων και να εφαρμόσουμε γρήγορα το 28ο καθεστώς.
Είναι βασικότατο αυτό, γιατί πρέπει να διευκολυνθούν και οι διασυνοριακές δραστηριότητες για την ενίσχυση της ενιαίας αγοράς. Επίσης, πρέπει να επιταχυνθεί η τραπεζική ένωση. Και βέβαια, η ασφάλιση των καταθέσεων και αυτή η χρηματοπιστωτική σταθερότητα θα βοηθήσει την ανάπτυξη. Κομβικό ρόλο αποτελεί η βιωσιμότητα του δημοσίου χρέους, με παράλληλη διασφάλιση επαρκούς δημοσιονομικού χώρου. Πρέπει να προχωρήσουμε σε μεγαλύτερη απορροφητικότητα των κοινοτικών κονδυλίων, σε εκσυγχρονισμό των εθνικών διαδικασιών και σε υιοθέτηση των ιδίων πόρων.
Έχω πάρει σημαντικότατες, σημαντικότατες προτάσεις από συναδέλφους των υπολοίπων κομμάτων, γιατί οι ίδιοι πόροι θα καλύψουν σημαντικό κόστος αποπληρωμής του Ταμείου Ανάκαμψης. Επίσης, θα πρέπει, και το θεωρώ ιδιαίτερα σημαντικό, να προστατεύσουμε την κοινωνική συνοχή. Έχει ιδιαίτερη σημασία η εξέλιξη αυτή. Και θέλουμε μια Ευρωπαϊκή Ένωση να υπηρετεί τους πολίτες.
Θέλουμε μια Ευρωπαϊκή Ένωση να απαντά, να απαντά στις ανάγκες των πολιτών, στις πραγματικές ανάγκες νοικοκυριών και επιχειρήσεων. Και βέβαια οι χώρες της Νοτιοανατολικής Ευρώπης, τα σύνορα των χωρών με τη Ρωσία και τα σύνορα των χωρών με την Τουρκία, όπως η Ελλάδα, λόγω ενεργειακών και εθνικών θεμάτων, θα χρειαστούν μεγαλύτερη προστασία και αντιλαμβάνεστε τη σημασία της φράσεως αυτής.
Ο προϋπολογισμός της Ευρωπαϊκής Ένωσης θα πρέπει να ενισχύει την οικονομική και νομισματική κυριαρχία της Ευρωπαϊκής Ένωσης, να αναπτύσσει πανευρωπαϊκά προϊόντα αποταμίευσης, να ενισχύει τη φορολογική δικαιοσύνη, να καταπολεμά τη φοροδιαφυγή και βέβαια να αναπτύξουμε τον στρατηγικό ρόλο της Τράπεζας Επενδύσεων. Επίσης να ενισχύσουμε τις περιοχές που πλήττονται και βέβαια τη δημιουργία ενός ειδικού ταμείου που να υποστηρίζει νησιά και ορεινές περιοχές. Και τέλος, κύριοι συνάδελφοι, οι ευρωπαϊκοί πόροι πρέπει να υπηρετούν τα στρατηγικά συμφέροντα της Ευρωπαϊκής Ένωσης. Πάνω από όλα ο άνθρωπος, πάνω από όλα η κοινωνία, πάνω από όλα η στήριξη των πολιτών.
Ζούμε μαζί την πίεση των πληθωριστικών πιέσεων. Θα τα ζούμε όλα αυτά και πρέπει, και πρέπει να αποτυπώσουμε τις πολιτικές μας προτεραιότητες στις κοινωνίες, τα κράτη, τις μικρομεσαίες επιχειρήσεις που αποτελούν και τα κύτταρα της κοινωνίας. Αναμένω, α, περιμένω στο πνεύμα της συνεννόησης και της κατανόησης, όπως δείξαμε στην πρώτη μας συνάντηση, να ετοιμάσουμε ένα σχέδιο που να ικανοποιεί πολίτες, κράτη, κοινωνίες, γιατί μόνο έτσι μπορούμε να προχωρήσουμε μπροστά. Και περιμένω τα σχόλιά σας και σας ευχαριστώ πολύ. Αυτά.
Thank you, dear rapporteur, and I will now give the floor to Jonas Fernandez on behalf of Carla Tavares.
Jonás Fernández
Thank you, Chair. Carla Tavares cannot attend to this meeting this afternoon, so she asked me for reading a note. For the S&D Group, this opinion should send a clear message. The 2027 EU budget cannot be treated as a routine end-of-MFF exercise. It will be the first year without the RRF, while Europe's investment needs are still widening.
We therefore need a budget that ensures stability and predictability, but also one that gives Europe the means to invest in social cohesion, affordable housing, energy security, the green and digital transitions, SMEs and startups, and long-term competitiveness. Overall, we see positive elements in this first set of compromises, including references to future EU-level investment instruments, new own resources, cohesion, energy union, inclusive competitiveness, and the need to protect cohesion policy and CAP from being crowded out by new priorities. These are important for us and should remain in the text.
At the same time, we have several concerns. Some parts go beyond the scope of a 2027 budget opinion, namely detailed language on the savings and investment union, the financial services omnibus, economic governance enforcement, or pan-European investment products. We also need to avoid language that presents public investment as merely subordinated to private capital or that shifts the opinion towards a simplification or deregulation agenda.
Our goal is to be constructive in this negotiation for a fair agreement, but we need to ensure that the 2027 budget is not only about defense and deregulation, but about sustainable investment, cohesion, and a fair model of European competitiveness. Thank you so much.
Tomáš Kubín
Thank you, Madam Chair. I will speak in Czech language. Vážená paní předsedkyně, vážení kolegové, jako každý rok projednáváme v tomto výboru rozpočtové priority na následující rok.
Tento je atypický, protože se nacházíme ve specifické situaci, kdy letos v srpnu končí nástroj pro oživení a odolnost a zároveň se nový víceletý finanční rámec teprve vyjednává. Chtěl bych nejprve poděkovat panu zpravodajovi za konstruktivní výměnu názorů na úvodním setkání stínových zpravodajů a za první kompromisní text, ve kterém se ale bohužel naše pozměňovací návrhy, pardon, neobjevily. Pokud jde o priority, rádi bychom zdůraznili význam konkurenceschopnosti evropských firem a především malých a středních podniků. Ty by měly mít snadný a rychlý přístup k financování a méně byrokracie vyplývající z právních předpisů EU. Měli bychom proto držet kurs simplifikace, který nastavila Evropská komise a usnadnit tak život našim podnikům a občanům.
Oceňuji, že pan zpravodaj se ve svém textu konkurenceschopnosti taktéž věnoval, koneckonců i tady ve svém projevu. Souhlasíme také s pozměňovacím návrhem EPP, podle něhož by každému novému legislativnímu návrhu v oblasti finančních služeb mělo předcházet důkladné posouzení dopadů na konkurenceschopnost. Dále bychom se místo zavádění nových vlastních zdrojů měli spíš zaměřit na boj proti podvodům, zejména podvodům s daní z přidané hodnoty, kvůli kterým ročně přicházíme o 12 až 32 miliard eur.
Pokud by bylo v rozpočtu přesto potřeba více peněz, upřednostňujeme jejich získání v rámci stávajícího systému, tedy prostřednictvím kritéria hrubého národního důchodu. Na okraj domnívám se, že by ten první kompromisní text mohl být v některých pasážích zestručněn a více zaměřen na záležitosti relevantní pro hospodářský a měnový výbor. Já si myslím, že není nutné, aby zpráva obsahovala zmínky o několika právě projednávaných legislativních návrzích či o sporných otázkách případných nových uhelných daní.
Ale věřím, že se nám pod vedením pana zpravodaje ten text podaří dovést k dokonalosti a těším se na další spolupráci.
Thank you, and I give the floor back to the rapporteur for some concluding remarks.
Georgios Aftias
Ευχαριστώ θερμά. Καταγράφω τις παρατηρήσεις των καλών συναδέλφων, πάνω από όλα η κοινωνία, πάνω από όλα οι πολίτες που μας περιμένουν, πάνω από όλα οι πολίτες που περιμένουν από εμάς αποτέλεσμα. Ευχαριστώ τους καλούς συναδέλφους για τα καλά τους λόγια. Θα λάβω υπόψιν όλες τις παρατηρήσεις, όλα τα σχόλια, γιατί οι λαοί μας αυτό περιμένουν.
Να δώσουμε ένα κείμενο που να ταιριάζει στην κοινωνία, στις ανάγκες της και στην εποχή μας. Ευχαριστώ θερμά.
Aurore Lalucq
Thank you. Thank you to all of you for the discussion. And the vote on the opinion in ECON is scheduled for July 15th. And concerning the budgetary amendments, members will be able to table amendments until July 22nd at 4:00 PM, following the availability of the Council position received on July 15th. The vote on the budgetary amendments in ECON will take place after the summer break on September 2nd.
Thank you to all of you. And see you tomorrow for an important vote and some important discussion. See you.
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