European Central Bank (ECB) President Christine Lagarde reassured European policymakers that inflation is easing and recent rate cuts are taking effect, but she cautioned against lingering risks from global trade tensions and geopolitical uncertainty.
Speaking before the European Parliament on Monday, she reaffirmed the ECB’s cautious, data-driven approach and emphasized the need for a digital euro to enhance Europe’s financial autonomy.
“Most measures suggest that inflation is converging towards our target on a sustained basis,” Lagarde said, noting that eurozone inflation had dropped to 2.5% in January, down from 5.5% a year earlier. However, she warned that global trade disruptions could still impact inflation trends, stating, “We are not pre-committing to any particular rate path.”
Her remarks come after the ECB lowered interest rates by 125 basis points since June 2024, bringing the deposit facility rate to 2.75%. While monetary policy adjustments are expected to ease financial conditions, the eurozone economy remained sluggish in 2024, growing just 0.9% year-on-year. The final quarter was particularly weak, with stagnant industrial production and subdued consumer spending despite rising real incomes.
“Manufacturing remains under pressure, but services are holding up,” Lagarde said, highlighting the resilience of the labor market. She pointed to strong employment figures and increasing real wages as potential drivers of consumer confidence but acknowledged that “households are hesitant to spend more,” while business investment remains weak.
Lagarde also underscored the importance of reducing Europe’s reliance on foreign payment providers, stressing the need to move forward with the digital euro. “Payments are the backbone of our economy, and Europe cannot afford to be overly dependent on external providers,” she stated. The ECB envisions the digital euro as a complement to physical cash, ensuring a secure and sovereign payment system for the region.
Additionally, Lagarde called for further capital market integration to unlock investment and drive technological progress. “With the right framework, Europe can mobilize its vast savings pool to finance its own innovation and technological progress,” she said.
As the ECB continues to navigate economic challenges, Lagarde’s message was clear: cautious monetary policy adjustments, strengthened financial autonomy, and digital innovation will be key to sustaining Europe’s economic resilience.
