Keynote speech by Christine Lagarde, President of the ECB, on the annual reception of the Affiliation of German Banks on the event of their seventy fifth anniversary
Berlin, 20 April 2026
It’s a pleasure to be right here at the moment for the seventy fifth anniversary of the Bundesverband deutscher Banken.
When this affiliation was based, Europe was rising from probably the most devastating interval in its fashionable historical past – and was about to enter a golden age of peace and financial progress.
In the present day we face extra uncertainty about which path Europe will take than at any level since then. And far of that uncertainty is coming from past our borders.
When historians look again at this era, what’s going to stand out is the sheer relentlessness of it. A once-in-a-generation pandemic, adopted by a land struggle on our continent, adopted by the worst power disaster in 50 years, adopted by probably the most sweeping tariff will increase for the reason that Thirties.
And now a army battle that has shut down the world’s most essential power chokepoint, the Strait of Hormuz.
Every of those shocks has torn away one thing that Europe had come to take as a right. A safe provide of low cost power. A predictable buying and selling relationship with the US. The foundations of our post-war army safety.
However Hegel noticed that die Eule der Minerva beginnt erst mit der einbrechenden Dämmerung ihren Flug – the owl of Minerva begins its flight solely as nightfall falls. Understanding comes after the expertise, not earlier than it. And the reality is that these painful years have taught us a terrific deal.
A few of these classes are already being acted on. The transformation of defence coverage in Germany over the previous yr would have been unthinkable with out the shocks that preceded it.
However there are additionally classes on how we navigate the financial penalties of enormous shocks – and people classes are instantly related to the scenario we discover ourselves in at the moment.
Constructing on this, at the moment I want to give attention to the place the financial system stands, what financial coverage must see to calibrate its response, and the way fiscal insurance policies will help maintain the inflation shock as small as doable.
The financial scenario
The financial image stays deeply unsure. The stop-start nature of the battle – struggle, ceasefire, peace talks, their collapse, a naval blockade, its lifting, its reinstatement – makes it exceptionally laborious to gauge the period and depth of the implications.
However what is evident is that there isn’t a simple path again to the place we have been earlier than this battle erupted.
In March, we printed our baseline projection for the financial system alongside an opposed and a extreme state of affairs, every pushed by progressively greater power costs. All three noticed greater inflation and decrease progress than we anticipated in December, with the injury escalating with the severity of the shock.
The important query now could be which path we’re on.
The availability disruption is gigantic. Even accounting for pipeline redirection and strategic reserve releases, the web lack of oil is estimated at round 13 million barrels per day – roughly 13% of worldwide consumption. And that’s earlier than the US blockade.
However thus far, now we have not seen power costs rise far sufficient to push us squarely into our opposed state of affairs.
Whereas each oil spot and futures costs are above what we assumed in our baseline, markets look like betting that the disruption will probably be short-lived. European pure fuel costs are under our baseline reflecting, amongst different issues, gas-to-coal switching in Asia and comparatively delicate climate in China.
If the battle resolves rapidly, the direct power worth shock might show to be on the smaller finish of expectations – and the financial impression could be contained.
The outlook, nonetheless, stays fragile – and worse paths are nonetheless doable.
Day by day the battle continues, the broader the hole between power provide and demand and the longer the normalisation. And the longer the disruption, the additional the unfold of its results – not solely by means of greater power prices, however by means of the lack of important inputs.
Round a 3rd of helium produced globally comes from the Gulf, and its loss could be felt in semiconductor fabrication and high-tech manufacturing. An identical share of seaborne commerce in fertilisers passes by means of the Strait, affecting international meals costs. Near a fifth of worldwide methanol manufacturing is in danger, with penalties for the chemical compounds and plastics industries.
If the disruption persists lengthy sufficient, the adjustment shifts from costs to rationing – with very totally different financial penalties. Increased costs are primarily inflationary. Shortages hit output instantly and are worse for progress.
General, there have been restricted indicators of provide chain disruptions thus far – each globally and within the euro space. However native tensions are seen: jet gas costs have roughly doubled for the reason that outbreak of the battle, and rationing has been imposed at some particular person airports since early April.
The suitable coverage combine
Setting financial coverage in such an atmosphere is difficult.
We all know we face a significant shock – the Worldwide Power Company deems it the most important oil provide disruption in historical past. However previous expertise has taught us that the dimensions of the shock alone doesn’t decide its financial penalties.
Two different elements stay genuinely unsure, and each are important for getting our coverage response proper.
The primary is the period of the disruption.
Because the financial image I simply described makes clear, the longer the battle lasts, the more severe the outlook turns into – and never in a linear means. Period is subsequently key for judging which state of affairs we face.
In 2022 it was clear early on that the shock was not solely giant however persistent. Europe was not going again to utilizing Russian fuel. We needed to construct new LNG infrastructure, discover new suppliers and compete within the international marketplace for imports.
In the present day the vary of doable outcomes is much wider. On 31 March, when the battle seemed to be escalating, oil costs would have positioned us squarely in our opposed state of affairs. By 10 April, after the ceasefire was introduced, we have been between the opposed state of affairs and the baseline.
We’re watching what comes subsequent.
The second issue is the pass-through of power costs to broader inflation.
The identical power shock can play out very otherwise relying on the financial atmosphere wherein it lands. In 2022, robust demand, international provide chain bottlenecks, and acute labour shortages created the situations for broad pass-through. Against this, when power costs spiked in 2008 and 2011, weaker economies meant that greater costs stayed largely within the power element.
Two forces pulling in reverse instructions are prone to affect the inflation response this time.
On one aspect, households and companies have simply lived by means of a big inflation shock and could also be extra delicate to rising prices. The muscle reminiscence is contemporary. Incoming surveys counsel that the promoting worth expectations of companies have elevated, and that households are already paying extra consideration to inflation.
On the opposite aspect, greater power costs and weaker shopper sentiment will weigh on demand, notably provided that progress, whereas recovering, was reasonable earlier than the battle started. That would restrict the extent of worth and wage will increase. Within the two most up-to-date comparable episodes – the Gulf Struggle of 1990-91 and Russia’s invasion of Ukraine – oil provide shocks diminished euro space GDP by round 0.4% on common within the first yr.
The relative significance of those forces will solely develop into clear as we see precise knowledge on companies’ pricing behaviour and wage negotiations.
This double uncertainty concerning the period of the shock and the breadth of pass-through argues for gathering extra data earlier than drawing agency conclusions for our financial coverage.
However there may be one other issue that may form the inflation consequence: the design of fiscal coverage.
Governments face robust strain to cushion the blow for households when power costs surge. However the 2022 expertise exhibits that each approaches to offering assist – price-based measures and income-based measures – contain tough trade-offs.
Worth-based measures can convey down inflation, however at the price of blurring the sign that households and companies want to cut back power consumption.
Measures comparable to tax cuts and worth caps diminished inflation by near 1 proportion level in 2022. This was invaluable as a result of power costs are extremely seen to the general public and weigh closely on inflation expectations.
However when such measures are broad and open-ended, the general public has no incentive to chop again on power use. And when they’re ultimately unwound, they increase inflation mechanically. Over the last shock, the withdrawal of fiscal assist contributed to prolonging the interval of above-target inflation properly into 2024 and 2025.
Earnings-based measures can defend residents, however at the price of stimulating the financial system an excessive amount of.
Fiscal transfers to lower-income households are socially crucial and economically stabilising. However when assist is prolonged throughout the earnings distribution, it sustains demand that companies can then use to move on greater prices – forcing financial coverage to tighten greater than it in any other case would.
In 2022 fiscal measures to compensate for greater power prices and inflation amounted to 1.7% of GDP. That made fiscal coverage internet expansionary at a time when financial coverage was tightening with the goal to dampen demand.
In the present day there may be one other constraint. Within the years for the reason that pandemic, an expectation has taken maintain that governments will step in to defend households and companies from each giant shock.
However fiscal area has shrunk since then. Governments that attempt to cushion each shock for each family danger undermining fiscal sustainability at their peril.
That makes selectivity not simply fascinating however crucial. The lesson of 2022 is evident: assist that’s short-term, focused and preserves the worth sign can defend probably the most weak with out making inflation worse or public funds much less steady.
Conclusion
Let me conclude.
Europe faces one of the decisive moments within the 75 years since this affiliation was based. The tempo of change is disorienting. The shocks maintain coming. And the acquainted certainties of the previous are usually not returning.
However every disaster has sharpened our understanding of what’s wanted.
I started with Hegel’s commentary that understanding comes solely after the expertise. Let me finish with Goethe’s resolution: Es ist nicht genug zu wissen, man muss auch anwenden. Realizing shouldn’t be sufficient; we should apply.
For the ECB, this implies being able to act when now we have the knowledge we want. Our dedication and our compass are clear.
We’re dedicated to our worth stability mandate. We are going to be certain that inflation returns to 2% over the medium time period. And we’ll act because the scenario calls for.
Thanks.
