No news is good news. The absence of news in the ECB Governing Council meeting, which is already taking place without changing the types of interests in the 2%, is good news. On the ground because the ECB feels comfortable with the current inflation levels in the euro zone, at 2.1% in November, but because the central bank also improved its growth forecasts in September, which foresees for 2026 a horizon without changes in the price of money, as anticipated by the inverters. Christine Lagarde, president of the ECB, revealed that the decision to keep rates at 2% was taken unanimously and without debate on the possibility of an increase or reduction. Uncertainties persist but are now much greater for the ECB.
Budget boost and more growth
Fiscal stimulus is one of the keys to growth forecast until 2028 by the ECB. “Annual real GDP growth is expected to average 1.3% over the projection horizon, supported by increasing real disposable income, reduced uncertainty, solid external demand and fiscal stimuli linked to defense and infrastructure spending,” explains the central bank. This fiscal boost, led by Germany, will have a cumulative effect on eurozone GDP growth of 0.5% in 2028, with a greater impact in 2026 and 2027, according to ECB estimates.
In a year as convulsive as 2025, the ECB was able to close the financial year with a revision of its growth forecasts until 2028. This year it expects growth in the euro zone of 1.4%, compared to 1.2% calculated in September; al 1.2% in 2026 (previously 1%); up to 1.4% in 2027, compared to 1.3% of the previous estimate, and up to 1.4% in 2028, in the first calculation proposed for this exercise. What is the reason for this improvement compared to September? Lagarde admitted to having encountered two surprises. On the one hand, we are seeing an increase in investment in the euro zone, both public and private. And on the ground of big companies, I am also among the pymes. These are inversions linked to the entire development of artificial intelligence, as Lagarde explains.
On the other hand, the ECB managed to improve its exports, notably in the chemical and pharmaceutical sector, despite the decline in EE UU declines for much of the year. This is why many companies have increased their overseas sales by forecasting tariffs. The ECB also explains that the effective EE UU margin on euro zone exports that it applies in its estimates fell to 12.1%, compared to 13.1% of those established in September.
The Russian assets dilemma
The use of 200 billion euros of Russian sovereign reserves tied up by EU sanctions to finance Ukraine’s reconstruction overwhelmed the meeting. The reserve tokens are stored at Euroclear (headquartered in Belgium) and on the table are risks of legal complications and risks to financial stability. When asked by journalists, Lagarde said that “our job as a central bank is to determine that any decision taken by (EU) leaders respects the (EU) Treaty, respects the international rule of law and does not undermine financial stability. But above all, it is something that is outside our scope of competence.”
Guys in a comfort zone, who can go up or down
Lagarde confirmed that the levels in the Eurozone are at the appropriate level, but she wanted to make clear “that all options are on the table”, further ensuring that there is unanimity within the Governing Council in which the levels can go back to the lowest in the future. The president of the ECB did not want to align himself with the palomas, in favor of a possible additional reduction, and did not even question the halcones, even if Isabel Schnabel warned that the increases could arrive “before many people believe it”. “Everyone in the world would like to get future directions (forward-looking orientation), but given the current degree of uncertainty, we cannot offer it,” Lagarde said.
These uncertainties are linked to geopolitics, the possibility that China will flood the euro zone with cheap products in the event of a trade war with the United States and the war with Ukraine. And that can change expectations for both high and low inflation and growth. For example, a much stronger euro, above $1.25, would remain two-tenths higher in 2027 and 2028, and would lower inflation by three-tenths.
In its estimates, the ECB envisages a euro at 1.16 dollars on average in 2028 – compared to 1.13 in its estimates for 2025 – and cheaper oil, at 62.5 dollars in 2026 and 2027 compared to an average of 69.2 in its scenario for this exercise.
Succession on the horizon
Christine Lagarde’s term as ECB president ends in October 2027 and the examination of her succession begins. “I don’t have a favorite candidate. There are a lot of good candidates. And there will be more in the future. It’s very satisfying that so many people want my job. It’s a great job. I think it’s important and has an impact on people’s lives,” Lagarde said. The judiciary has even expressed its intention to analyze the current regulations which prevent a member of the executive committee from being able to occupy the presidency if this implies the extension of his current mandate. This limitation clashed with the aspirations of the Frenchman Benoît Cœuré to succeed Draghi and those of Christian Noyer to succeed Wim Duisenberg. “We need to analyze the new question, see what is possible and what is not,” Lagarde said. A possible legal reform could pave the way for the presidency of Schnabel, a member of the ECB executive committee.
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