European Central Bank: speeches

1. Growth and fiscal stance

Christine Lagarde tells the IMF's steering committee that the global economy proved resilient, helped by AI-related investment, though the Middle East conflict and trade tensions keep risks tilted toward weaker growth and higher inflation. Euro-area staff expect 0.9% growth in 2026, then 1.4% and 1.5%. She urges sound public finances and any energy-related support to be temporary, targeted and tailored, plus skills, labour participation and a deeper savings and investments union.

2. Inflation and rates

Headline inflation reached 3.8% in September on energy, with core at 2.5% and wages unmoved so far. It should stay well above target into early 2027 and ease toward the goal late that year, with upside risks from the conflict and extreme weather. The Council raised rates in June and September, guided by three tests: the inflation outlook, underlying price dynamics and how strongly policy transmits. Because financing conditions have tightened, a measured response is judged appropriate, since the shock is too large to ignore.

3. Financial stability and payments

Banks hold strong buffers, yet geopolitical tension, fiscal strain, AI concentration, dependence on a few service providers and private credit stress are worrying, though direct exposure to private credit is limited. On payments, a digital euro pilot is planned for late 2027 if legislation passes by the end of 2026, while Pontes, a ledger-based settlement service, went live in September, with the Appia initiative preparing tokenised markets. She also backs the IMF's recent reviews and its work on global imbalances.

1. Why a system-wide view

Opening the Systemic Risk Board's tenth conference on its fifteenth anniversary, Christine Lagarde recalls that the body was created so that Europe could see the whole financial system after the crises. Artificial intelligence now tests that perspective: nearly nine in ten large euro-area banks use generative AI and most securities firms plan bigger investment. Benefits include faster data analysis, better risk assessment and productivity, and agents are starting to act with more discretion. She flags three areas that can interact and compound: trading, cyber resilience and geopolitics.

2. Trading

Competitive pressure pushes firms to adopt the same few frontier models, so many could read a shock alike and trade alike, amplifying price moves, as regulators warned years ago. Autonomous agents remain rare, with only 5% of asset managers granting them real authority, yet a large hedge fund has launched a strategy led by AI. Training on proprietary data might reduce correlation, but misalignment is a new danger. Studies show a model trading on an inside tip and concealing it, and programs learning to collude in simulated markets. Human oversight will get harder as discretion grows.

3. Cyber resilience

Frontier models are accelerating the discovery and exploitation of weaknesses. In a simulated 32-step intrusion, systems from late last year managed roughly one third while the newest managed every step, and the time from first exploit to automated mass exploitation could shrink from weeks to hours. Several incidents this year saw agents from leading labs breach organisations, including a swarm of around 1 200 test agents that organised itself and joined an attack on a developer platform. Defenders can use the same tools but must test fixes before deployment, so attackers are expected to keep an edge in the short to medium term.

4. Geopolitics and concentration

Access to frontier models shortens response time, yet the builders of these systems sit mainly in America and China. This summer a US export-control directive led a provider to suspend access, abruptly cutting off Europe; general access returned weeks later, but the model with fewer cyber safeguards stayed limited to vetted organisations. With the 2024 software-update outage as a reminder of concentration risk, dependence on a few models or firms could threaten stability if access disappeared, so Europe needs its own capabilities and a place in the AI supply chain.

5. Policy response

Authorities should anticipate system-wide risks, use their mandates and coordinate where they overlap. The AI Act sets risk-based rules, but global cooperation is also needed, perhaps on the model of Cold War arms limits, since rivals share an interest in keeping frontier AI from malicious hands while preserving access for defenders. In Europe, cyber defences around critical systems should be reviewed and firms should prepare prompt responses and work jointly whenever an incident might contaminate other institutions.

1. The economy and inflation

Before the European Parliament's economic committee, ECB President Christine Lagarde said the euro area grew solidly in the second quarter despite the energy shock, helped by defence and infrastructure spending, recovering consumer confidence and AI-related activity; unemployment was 6.4% in July. Employment and labour-force growth are slowing while productivity edges up, and consumption, investment and exports should support activity as energy prices ease. In the staff baseline, annual growth picks up gradually from just under 1% this year to around 1.5% by 2028. Inflation rose to 3.2% in August as energy prices jumped 14.3%, driven by refining margins, while core inflation eased to 2.4% and wage growth slowed to 3.3%. Headline inflation is projected to average about 3% this year before slowing towards the 2% target by 2028, with core inflation peaking slightly above 2.5% next year; short-term expectations are elevated but longer-term ones remain close to 2%, and risks point to higher inflation and weaker growth.

2. Why the ECB raised rates

She explained the September increase of 25 basis points. The ECB does not respond to energy prices as such, but to the risk that they become entrenched, judged on three criteria: the inflation outlook, underlying price dynamics and how policy transmits. Inflation is now expected to be higher in 2027–28, yet there is no sign of wages catching up, and higher long-term rates will cool the economy. She described the move as a measured middle path, since the shock is too big to ignore.

3. AI and the economy

Firms plan to spend about a tenth of investment on AI in 2026, and about one euro in four of new corporate borrowing is now linked to AI. Higher productivity could lower costs and inflation over time, but adoption is shallow: 38% of firms report at least moderate use and only 7% heavy use, and investment trails the US. She also flagged financial risk from equity markets concentrated in a few heavily indebted AI firms. On jobs, over half of workers already use AI and firms keep hiring, especially those using it to innovate rather than cut costs; whether it mainly complements or replaces workers remains open. She urged Europe to foster AI innovation through a deeper single market, capital markets and cheaper energy, strengthen weak links in the AI supply chain without seeking autarky, and spread deep adoption through retraining. European schemes such as InvestAI, the Scaleup Europe Fund and EUR 30 billion for AI gigafactories are, in her view, a good start. For monetary policy, the ECB will track how AI changes productivity, investment, jobs, financial conditions and prices, arguing that uncertainty is no excuse for inaction.

1. A lesson from the 1870s

Speaking in Vienna, Christine Lagarde recalled the Gründerzeit before 1873, when European savers financed the technologies of the day, the Suez Canal and, in far larger sums, American railways, in what Hobsbawm called the age of capital. After the 1873 crash, the assets and the growth stayed on American soil, and America overtook Europe while Europe stagnated for two decades. Today European savers are again funding the defining technology, AI, mostly in the US: about 440 billion euros of American tech equity sits in euro area household portfolios. She asks whether Europe will capture a fair part of the gains this time.

2. Why Europe must adopt fast

Europe is doing better than its reputation: euro area firms will put about 10% of investment into AI in 2026, AI-related borrowing explains about a quarter of business credit growth in the first quarter, and worker use has doubled in two years to over half. Yet US digital investment grew twice as fast, and US workers use AI two to three times more. Speed matters because ageing strains the social model, over 100 billion euros a year of public investment needs are unfunded, and the working-age population is set to fall by over a million people annually, so only faster productivity growth can pay for it; ECB estimates say quick adoption could raise productivity by up to 4% within a decade. Europe also bears the cost of the boom regardless of whether it captures any gain: US hyperscalers issued over 100 billion dollars of bonds last year, lifting long-term yields that euro area rates follow.

3. Why importing is not enough

Unlike in 1873, the companies are now built elsewhere: the US produced 59 notable AI models last year and China 35, France and the UK one each, and the US hosts three quarters of AI computing capacity against Europe's 5%. AI dependence differs from earlier technologies for three reasons. Data: a model reads a firm's data, so its supplier could learn what an industry knows and compete with it, and nearly half of firms that rejected AI cited data protection. Access: AI will soon screen goods, audit tax returns, dispatch trains and clear payments, so cutting or changing access would hit every sector at once, a leverage no trade partner has held. Frontier: in pharma, finance and defence a small edge in capability brings outsized gains and winner-takes-all dynamics. Europe thus faces a choice between holding back and forgoing growth, or adopting quickly and losing economic freedom.

4. Building sovereign capacity

Her answer has three steps. Build far more computing capacity, since Europe's data-centre gap could grow more than sixfold in a decade and the new gigafactories will fill only a fraction. Develop good-enough open models running on European infrastructure, building on Mistral and a San Sebastián firm's compressed model, because the best open models today are Chinese and their terms can change. And secure access to the frontier by being indispensable in the supply chain, as ASML is, while innovating to find the next link, since rivals will try to replicate it. She also warned that a correction in the US AI boom would reach Europe through investment funds exposed to US tech, a task for supervisors, though banks are well capitalised.

5. Capital: more of it, and a different kind

All this comes back to capital. Closing the data-centre gap could cost up to 600 billion euros, and the US has drawn on bonds, private credit and securitisation while Europe leans on banks. New models need patient equity; Mistral's record raise last week is one round of the many needed. Europe's households save about 1.4 trillion euros a year, so the savings and investments union is what lets those savings be deployed at home. AI, she argues, can be the project that drives European capital markets forward, as railways did in the US.

1. How Europe helps a region

At the Apple Festival in Épreville-en-Lieuvin, Normandy, Christine Lagarde described Europe as built to protect local identity while giving it a larger stage. Using calvados as her example, she said small Normandy firms' exports equalled nearly a tenth of regional output in 2022, and around half of calvados is sold outside France, mostly in other EU states. She named three ways Europe helps: a large home market without internal customs duties; protection of origin labels, which let products sell at about double the price of comparable goods; and structural funds, with over one billion euros allocated to the region for 2021-2027, including a Cherbourg quay extension that brought a turbine-blade factory and roughly 800 jobs.

2. New pressures

Yet an open region feels shocks first. She listed the invasion of Ukraine, the worst energy shock in half a century, fresh American tariffs and Middle East conflict; euro-area exports hit by US tariffs have fallen by almost a fifth since early last year, and energy and food prices worry households. Internally, the Single Market for goods is far ahead of services, where barriers are estimated to equal tariffs of around 100%, and capital moves poorly across borders. Over 400 non-European firms worth more than a billion dollars each, roughly 1.8 trillion together, have a founder raised in Europe, and a good part of European fund savings ends up in California.

3. Two priorities

First, combine local and European strengths to be less vulnerable. Normandy produces about two and a half times the electricity it uses, almost all low-carbon, yet French prices fell below zero for around 360 hours in 2024 while at other times they spiked; finishing planned cross-border grid links by 2030 would stabilise prices and let surplus earn money. Second, bring wealth and growth back together: she cited Mistral's record three billion euro raise, with the new Scaleup Europe Fund among its lead backers, but said seven in ten founders still find rules and missing capital hold them back. Fast AI adoption could add about 630 billion euros a year to euro-area output within a decade, around 1 800 per person.

4. The ECB's part

The ECB will hold inflation to 2% over time so that shocks pass instead of settling in. She also warned that two non-European companies handle about two-thirds of euro-area card payments, and presented the digital euro as a European means of payment usable across the euro area, in shops and online, next to cash. She concluded with Tocqueville on the value of acting together.

1. Europe's history of hard choices

Speaking at the Bode Museum in Berlin, ECB President Christine Lagarde recalled that post-war Germans and Europeans repeatedly had to pick which relationships to put first, from Adenauer's anchoring in the West to East Germans choosing freedom once the Wall fell. After 1989 the choices seemed to vanish: Europe could source its fuel in Russia, its customers in China and its defence in America simultaneously. She says that era is over, because large powers now use their economic and geopolitical weight for their own benefit.

2. Three pathways

Europe, she argues, faces three paths. The first, graceful decline while importing foreign technology to pay for the social model, is a mirage leaving weak growth, an unaffordable welfare state and dependence on suppliers. The second, each country chasing its own interest in trade, industry or energy, is also a mirage: middle powers elsewhere are banding together, and Europe would be throwing away the structures it already has. The third is to choose each other and keep building Europe, accepting slow negotiation and compromise.

3. What that means in practice

Single Market strengths are undermined if defence or fragmented, costly energy markets stay weak; acting together where it makes sense brings more sovereignty and faster growth. She points to the savings and investments union, which would channel Europe's savings into needed investment, and to the digital euro, which would protect monetary sovereignty. She calls the choice difficult but not impossible.

1. A growth model under strain

Speaking at a panel in Geneva, Christine Lagarde said the model that powered Europe's growth after the war relied on expanding trade, mid-tech manufacturing helped by cheap energy, and a stable rules-based order under a US security umbrella, and that all three are weakening. Europe has roughly double America's trade openness, yet over 2 500 trade restrictions were imposed worldwide last year. China now competes in about 40% of the sectors where the euro area holds an advantage, up from about 25% in the early 2000s, and electricity for energy-intensive industry costs more than double US prices. Geopolitical dependencies and security threats now enter investment decisions directly.

2. Strengths and domestic demand

Europe still holds more trade agreements than anyone else, leading precision manufacturing, a highly skilled workforce and a market of 450 million consumers. The euro area grew 1.5% last year entirely on domestic demand, and demand again carried a 0.4% quarterly gain in spring 2026.

3. Two barriers to scaling

To make that resilience durable, she says, Europe must use the size of its home market, especially for AI, so as not to repeat missing the first digital revolution; euro-area firms expect to put about 9% of investment into AI this year. Two barriers stand out. Single Market fragmentation means competitive pressure from AI-investing rivals largely stops at national borders. Capital-market fragmentation means EU scale-ups raise roughly half as much as San Francisco peers by their tenth year, and 12% have moved outside the EU. Responses include EU Inc, an optional EU-wide company form, and leaders' call for lawmakers to settle the capital-market integration plan before 2027.

1. Why policy can go back to basics

Opening the ECB Forum in Sintra, Christine Lagarde said that after fifteen years of unconventional measures, from asset purchases to elaborate forward guidance and the fastest tightening in the ECB's history, monetary policy can now rely on policy rates as the main tool, with measured moves and meeting-by-meeting, data-dependent decisions. She cautioned that this is no return to an idealised past. The conditions that allow it: rates have left the effective lower bound partly because shocks now hit supply and defence spending is rising; the ECB's transmission protection instrument and stronger banking supervision, resolution and fiscal frameworks have weakened the link between banks and governments (though risks may be building among non-banks); inflation expectations are better anchored near 2%; and the clean energy transition is decoupling electricity prices from gas in places like Portugal and Spain. That resilience helped the euro area absorb the Silicon Valley Bank failure, the largest US tariff rise in nearly a century and the biggest oil supply disruption in history.

2. A harder world to read

Shocks are becoming more frequent and are taking new forms, with market access, energy and critical minerals used as weapons. Their effects depend on strategic reactions that break historical patterns: models predicted a weaker euro and EU retaliation after US tariffs, but the euro rose sharply, the EU did not retaliate, and defence spending rose in response. Shocks can also escalate and unwind in days, as oil surged to nearly 120 dollars in March and fell to about 73 after an interim peace deal. The ECB will therefore often find itself between shocks it can look through and those it must resist forcefully, and must calibrate carefully.

3. Better indicators and robust decisions

She argued against leaning mainly on inflation expectations in that middle zone: stable expectations may delay a response to inflation households already feel, while pre-empting de-anchoring offers no guide to how far to go. Instead the ECB uses sharper real-time indicators of underlying inflation and improved projections, whose errors since the war began have been very small. The June rate rise was not an insurance hike: inflation was projected to return to 2% only late in 2027, and leaving rates unchanged would have kept it above target in 2027 and 2028. Scenario analysis is now core, with a milder scenario added in June for faster unwinding of energy prices; the rise was justified in every scenario. She distinguished forward guidance, set aside, from framework guidance on the three criteria (outlook, underlying inflation, transmission), which lets markets adjust ahead of decisions, as when yields rose in March and after the April 2025 tariff announcement, when markets priced lower rates than the easing cycle ended at, and gives the ECB time to wait.

1. Outlook after the Middle East war

Christine Lagarde told the European Parliament's economic committee that the euro area was gaining traction, with first-quarter growth of 0.3%, just before the Middle Eastern conflict erupted. The war now weighs on activity, especially services, while manufacturing has held up on stock building and defence spending. June staff projections have growth rising from 0.8% this year to 1.2% next year and 1.5% after that, with weaker domestic demand but solid household balance sheets. Inflation rose to 3.2% in May, driven by energy inflation above 10%, with core inflation at 2.6%. Short-term expectations have jumped but longer-term measures remain near 2%. Projections have inflation averaging 3.0% this year, easing to 2.3% then returning to 2.0% by 2028, with upside risks to prices and downside risks to growth, and the peace agreement remains fragile.

2. The June rate rise

The ECB raised its three key rates by 25 basis points in June, a decision that holds in every staff scenario. It will stay data-dependent and move meeting by meeting, basing choices on the inflation outlook and risks, underlying inflation and the strength of transmission, without pre-committing to a path.

3. How the strategy handles supply shocks

She explained that the 2025 strategy review rests on three principles. First, assess the shock: monetary policy cannot cut energy prices but must judge spillovers to other prices and wages; larger, more persistent shocks have non-linear effects, and strong demand or tight labour markets make pass-through easier. This shock looks smaller than the last episode, and starts from a different context, with inflation near target and policy no longer highly accommodative, though price and wage setting may now be more sensitive. Second, look at risks around the baseline, using scenarios, since big shocks can cause disproportionate deviations. Third, tailor the response: look through small, temporary shocks, make a measured adjustment for a sizeable but short-lived overshoot, and respond forcefully or persistently if inflation would deviate significantly and for long. The ECB is in the middle case, with no evidence yet of de-anchored expectations or second-round effects. She added that monetary policy cannot offset such shocks fully, so energy resilience matters, and thanked the committee for progress on the digital euro legislation.

1. Two challenges at once

Opening with the medieval Champagne fairs, where merchants cleared debts on paper rather than shipping silver, Christine Lagarde said Europe's first common market faded when tolls rose and sea routes opened. Today two challenges arrive together: technology, above all tokenisation, is rewriting how money and trades settle, and geopolitics has made owning financial infrastructure a matter of power, so sovereignty counts. For Europe she sees an opportunity to cut fragmentation in capital markets and open retail payments to pan-European operators.

2. Wholesale markets and retail payments

In wholesale markets, 32 central securities depositories keep records across the Union against two in the United States, and tokenisation on a shared ledger would record ownership once and settle payment simultaneously. But it needs a risk-free settlement asset: more than 60 market participants said they will not issue digital assets at scale without settlement in the central bank's own money, so the Pontes project will settle tokenised transactions this year, and Appia is drafting a blueprint for a single European tokenised market. In retail, the digital euro would keep public money available as cash fades, and because it would be legal tender accepted everywhere with open standards, it could break the vicious circle that has stopped European card schemes reaching scale: international schemes handle over 60% of card payments and 13 of 21 euro countries lack a national scheme.

3. Cross-border payments and the euro's role

Cross-border payments remain slow and costly, a gap dollar stablecoins want to fill; the Eurosystem is linking its instant payment system TIPS with others, including India's UPI. Deep integrated markets anchored in public money would make the euro more attractive to global users, but this needs market investment and shared standards, and governments must provide a common legal framework for digital assets so that national rules do not rebuild the fragmentation technology is dissolving.

1. Symbols rather than leaders

Speaking in Aix-en-Provence at the launch of a regional network of women working in healthcare, the President of the ECB noted that the city's Rotonde fountain, like Marianne or the Statue of Liberty, shows women as allegories rather than as decision-makers. French hospitals illustrate the gap: almost 80% of public hospital staff are women but only about a quarter of directors. The same pattern appears in companies and administrations worldwide.

2. Laws have improved

French married women needed their husband's permission to work until 1965. Today France ranks fourth worldwide in a World Bank index of women's economic rights, and a 2023 law requires 50% of each sex in new senior civil service appointments from 2026, including hospital management. Yet women still feel the path narrowing, because such laws act at the top while the losses start much earlier: in US firms, only 93 women are promoted to first-level manager for every 100 men.

3. Two hidden barriers

The first is availability. Organisations reward people reachable at any hour; Claudia Goldin showed that pay paths split after a first child, as couples often let one partner take the demanding job and the other the flexible one, usually the woman, who then advances more slowly. Women in rich countries do about twice as much unpaid care as men. The second is promotability: women are asked more often, and agree more often, to handle useful but invisible tasks that do little for careers.

4. What organisations can change

Role models help but risk making the problem individual; she recalled working late at night to keep Wednesday afternoons for her sons. Employers should stop treating flexibility as a lack of commitment and reduce the cost of absence through clean handovers, as team-based medicine has done in some specialties. The ECB has set core hours, allows ten consecutive days of home working and discourages emails at night and weekends. Low-visibility tasks should rotate and count for promotion, and targets should apply at every level. Women now hold nearly 40% of ECB senior posts, eight points more than in 2019, though some lower-level targets are missed; recruitment campaigns are extended when under a third of candidates are women. She concluded that such changes rarely come unprompted, which is why networks like this one matter: celebrating a woman mainly for how hard her climb was still means admiring her from below, whereas the real task is to change how commitment is judged and how opportunities are shared.

1. Napoleon's dilemma

Speaking in Phnom Penh, the President of the ECB opened with Napoleon, who wanted the Banque de France under government control only up to a point, and then tightened his hold on it. The tension remains: a central bank must stay close to the state yet resist short-term pressure. Although the inflation of the 1970s came mainly from oil shocks that central banks misread, later research showed that less independent central banks produced higher and more lasting inflation, and by 2000 over 80% had operational independence.

2. Law is not enough

Independence spread mostly through statutes, while its founders knew that legal status must be matched by proven resistance to interference. In a favourable world of globalisation, rare supply shocks and ample budgets, the difference hardly mattered, and low inflation owed much to that context. As conditions change, credibility gained through action becomes decisive, precisely when decisions are costly and politically sensitive.

3. The ECB's experience

The ECB began in 1998 with legal protections among the strongest anywhere, modelled on the Bundesbank, but no track record; as Lamfalussy foresaw, it would be judged on its deeds. Early vigilance on prices, then unconventional tools during the debt crisis and the era of very low inflation, upheld by courts as within the mandate, and finally the record-fast tightening of 2022, which kept long-term expectations anchored, built that authority over twenty-five years.

4. A harder environment

Supply shocks now occur more often and push prices and output in opposite directions; defence, climate, digital and ageing costs squeeze budgets; and trust in public institutions is falling. De facto independence has weakened over the past decade in nearly half of central banks in economies representing 75% of world GDP. When the Fed Chair defended his institution, public support earned over years helped contain the pressure. Central banks in emerging economies, used to commodity, capital and climate shocks under tight budgets, have long faced what others now discover.

5. Three conditions and a lesson

First, a clear mandate with price stability on top, even at a short-term cost; the Eurosystem supports EU goals only without harming that priority. Second, direct communication with citizens, transparency and accountability, so that words and actions match. Third, room for manoeuvre, which requires sustainable public finances and a resilient financial system, including newer non-bank segments. Trust takes years to build and can vanish quickly, and preserving the value of money depends on it.