European Central Bank officials stated that ongoing energy shocks will require tightening policy stance.

Tonghui Finance App News—— A member of the ECB’s Governing Council and Greece’s central bank governor Yannis Stournaras made an important statement on Monday (April 6), clearly saying that if the duration of the energy shock related to the Middle East is long enough, and it further transmits to medium-term inflation expectations and wage levels, the European Central Bank will have to consider adopting a more tightening monetary policy stance.

This statement highlights the potentially severe impact of the Middle East conflict on the euro area economy, and adds more uncertainty to the direction of the ECB’s monetary policy in 2026.

Energy shocks lasting or further prompting a monetary policy shift

At the annual shareholders’ meeting of the Bank of Greece, Yannis Stournaras said that the ECB’s monetary policy in 2026 faces greater uncertainty, and therefore it needs to maintain a high degree of flexibility.

He said: “In this environment, the ECB’s Governing Council will assess whether rising energy prices could transmit into a broad and persistent inflation risk through expectations, wage changes, and the price-setting mechanism.”

He further explained: “If the pressure on energy costs proves to be temporary, then the impact stemming from this shock can be disregarded. But if the energy shock is stronger and persists, and affects medium-term inflation expectations and wage developments, then it is expected that a more tightening monetary policy stance will be required.”

He added that the ECB expects to continue adhering to a data-dependent approach and making decisions on a meeting-by-meeting basis, while also being prepared to adjust its policy stance when appropriate.

The Middle East conflict delivers a double blow to economic growth and inflation

Yannis Stournaras emphasized that the recent military escalation in the Middle East is causing serious disruptions to energy markets and global supply chains, and is adversely affecting both economic growth and inflation. He pointed out: “If the crisis continues or spreads across the entire region, these impacts may worsen further. Against this backdrop, the balance of risks facing the global and euro area economies has deteriorated significantly.”

Regarding the overall economic outlook for the euro area, he said that, affected by the fighting in the Middle East, rising uncertainty, and disruptions in energy markets, in 2026 the euro area’s economic growth is expected to slow from 1.4% in 2025 to 0.9%. These factors are significantly increasing the risk of stagflation—an intricate situation in which economic growth slows while inflationary pressure persists.

Greece’s economy faces external pressures but remains resilient

On the domestic front in Greece, Yannis Stournaras said that Greece’s inflation decline process is expected to be hindered in 2026 by new external cost pressures arising from international energy markets. Even if the core inflation rate will slow to 3.0%, the overall inflation rate is still expected to rise to 3.1%.

However, he remains relatively optimistic about Greece’s economic growth. He said that although the external environment is weak, the Greek economy has shown stronger resilience, and that in 2026 Greece’s economy is expected to grow by 1.9%, with the growth rate still exceeding the overall level of the euro area.

Fiscal policy needs to be coordinated carefully with monetary policy

Yannis Stournaras also specifically mentioned the impact of fiscal policy on the ECB’s response measures. He said that targeted temporary measures can effectively buffer the impact of the energy shock, but if broad and permanent fiscal measures are adopted, they may increase total demand and make monetary policy regulation and control more complex.

Monetary policy review for 2025 and outlook for the future

When reviewing its 2025 monetary policy, Yannis Stournaras said that the euro area inflation rate has fallen to a level consistent with the ECB’s medium-term target. Against this backdrop, in 2025 the euro system’s monetary policy gradually became less restrictive. He pointed out that the rate-cutting process that began in June 2024 continued through the first half of 2025, and by June 2025 the cumulative rate-cutting amounted to 200 basis points, while since July 2025 the ECB’s Governing Council has kept the key policy interest rate unchanged at 2%.

Overall, Yannis Stournaras’s remarks send a clear signal: against the backdrop of the Middle East war pushing up energy prices, the ECB is closely watching the risk of second-round effects on inflation. If the energy shock evolves from short-term disruptions into long-term pressure, the euro area’s monetary policy may shift from the current stance of moderate easing toward a more tightening direction. This statement not only reflects the ECB’s vigilance about the risk of stagflation, but also serves as a warning to global market investors.

The dual challenges of slower euro area economic growth and potential inflation pressure will test the ECB’s policy flexibility and decision-making wisdom. The international community needs to continue paying close attention to how the situation in the Middle East evolves and its far-reaching impact on global economic and financial stability.

(Editor: Wang Zhiqiang HF013)

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