Interview with Diário de Notícias

Interview with Luis de Guindos, Vice-President of the ECB, conducted by Luís Reis Ribeiro

10 November 2025

The US Federal Reserve System is currently facing government attempts at internal political interference. Do you see any reputational risks for the Fed and, consequently, for the US economy – which is the largest in the world?

I will not comment on any specific central bank but, in general, I believe that central bank independence is key because it is the best way to keep inflation under control. This is good for consumers, households and the general public. And, at the same time, from the markets’ perspective, an independent central bank will be the best way to keep inflation and interest rates low.

Is that the case for the ECB?

I can give you a very simple example. In October 2022, even though inflation in the euro area was above 10%, inflation expectations were anchored. Market participants and households believed that the ECB could take the right decisions to reduce the inflation rate. That is very important and occurs when there is an independent central bank. It is true that institutions can make mistakes, but certainly the main aim of an independent central bank is to keep inflation under control. If dependent on a government, monetary policy might be at the service of fiscal policy, and that is detrimental to confidence.

Regarding the case I mentioned at the start, many say that it takes time to establish the reputation of a central bank, but just one difficult period to spoil everything. Has it been easier for the ECB?

In the case of the ECB, we have a Treaty that very clearly sets out the independence of the central bank. The best proof of confidence is the example I mentioned, when in 2022, even though the inflation rate was very high, consumer expectations were always anchored at around 2%. And yes, that makes our work much easier.

For some months now, inflation in the euro area has stood within the reference values of the ECB’s mandate. When the ECB monitors expectations, what does it see? Do people also believe that inflation is going to remain close to 2%?

Yes. We see from our surveys that, according to consumer expectations, inflation will be very close to the price stability target of headline inflation of around 2%. To achieve that, the evolution of services inflation is perhaps the main factor. You could say it’s been a headache for us in the last few years, but it is falling and converging to a level consistent with the definition of price stability. Similarly, wage dynamics are also moving in the right direction.

Wage growth has stabilised.

Absolutely. Slower wage growth is a very important indicator for us.

Uncertainty in trade policy at the global and regional levels is another of the factors that the ECB regularly mentions in its communication. How is the ECB guarding against this degree of uncertainty? Do your decision models already incorporate a world in which uncertainty is more permanent?

Uncertainty has recently decreased. The EU reached a trade agreement with the United States, and uncertainty about the end-rate of tariffs has therefore fallen. However, tariffs will be somewhat higher, rising from 3% to around 13% for some industrial products exported by Europe, and the exact impact of this increase is also a source of uncertainty.

As yet nothing has really been concluded between the United States and China.

Yes, there are other sources of uncertainty, such as what will happen with the trade agreement between China and the United States. Because it’s not just about the bilateral agreement, it’s also about what might happen with other jurisdictions. China has made strong gains in competitiveness, and we have started to see that its exports are penetrating the European market. This will have an impact on both growth and inflation.

Wars and geopolitical tensions add to this.

Geopolitical risk is another factor to consider. There is Ukraine and the situation in the Middle East, which is now more stable. But in general, geopolitical risks are higher than two or three years ago. And that entails risks to financial stability. To those risks I would also add the very high asset valuations that we see in the markets, the potential impact of national fiscal policies and the growing non-bank sector, comprising hedge funds and private markets. These are elements that we have to take into account. Even though the level of uncertainty has decreased compared with six months ago, we need to take a very prudent and cautious approach to our monetary policy.

You mention the impact of fiscal policy. Do you see new threats of fiscal indiscipline in the euro area? Does this complicate your mandate and force the ECB to take action, or is it a problem for national governments to resolve?

Our projections and monetary policy decisions require a comprehensive assessment of the overall economic situation and fiscal policy. Fiscal policy is one of the main challenges we currently face. But it’s not just in Europe, it’s also in the United States, where the fiscal profile is worse than the euro area average. In the euro area as a whole we have a fiscal deficit of 3% of GDP and a debt ratio close to 90%. But there are huge disparities between countries. There’s also a new factor, namely that euro area countries have to increase defence spending because there’s a commitment with NATO. Average defence spending is close to 2%, but it will have to increase to 3.5% and then 5%. That’s a big effort.

Can we say that sovereign bond yields are relatively controlled and do not ignore these fiscal risks within the euro area?

The markets are calm. But the situation could change because countries will have to significantly increase defence spending, and, in parallel, send the message that fiscal policies will be sustainable.

Is the ECB more concerned now about the fiscal dimension in the euro area than in 2019 before the pandemic? I know that you don’t like to mention specific cases, like France, for example, but it is currently the one that springs to mind.

Because of the pandemic, there was a significant deterioration in the fiscal position of all countries. After the pandemic this started to be corrected, and it’s improved now. But there is one key factor: the need for political stability. This is very important and it’s not materialising. And it’s not just in France. For instance, Spain has not approved a government budget since 2023. These are elements that should be corrected to ensure that, if need be, the different governments are able to achieve fiscal sustainability over time.

In the EU, some national governments are hostile to the idea of a greater union. Is this delaying the deepening of the European project to a greater or lesser extent? I’m referring to aspects like the Single Market, banking union and the common deposit guarantee fund, not to mention tax harmonisation.

We have populism on both the right and the left and this makes it harder to take decisions and causes fragmentation. In the face of complex issues, populist parties on the right or left tend to propose “magic” solutions based on simple recipes. They believe that integration is not good. In my view they are utterly wrong. We still have discrimination and national rules that, in truth, prevent the existence of a real Single Market. The IMF did some work on this and concluded that these obstacles are equivalent to a kind of tariff.

International observers and markets indicate that the ECB may have achieved a neutral or optimal level of inflation and that the monetary policy relevant interest rate will remain at 2% until the end of 2026 at least. What would you say to that?

The current level of interest rates is the right level for addressing the situation. There are three indicators that we assess very carefully: the evolution of inflation, our projections and monetary policy transmission. If this changes, if inflation developments deviate, or if projections are modified, and if transmission is not correct, then we may change. But so far, we firmly believe that the level of interest rates is correct.

Inflation is anchored, but, based on the ECB’s projections, this stability doesn’t bring significant economic growth, which will be slightly above 1% until 2027. Is this a problem? If the ECB is playing its part, then who or what is not playing theirs?

We see growth of a little over 1%, and that’s quite a positive development because we’ll have avoided a recession. But the real rate of growth is below the potential growth rate, so it is very low.

What is the potential growth rate for the euro area now?

It’s somewhere in the range of 1% to 1.5%. But it cannot be observed, it must be estimated. It is a theoretical concept defined as the rate of growth we can maintain in the long term with the economy operating at its full capacity and the efficient use of the resources we have available. But it depends on developments in employment, immigration and demographics.

Job creation and immigration flows have been crucial, but do you agree that there is a limit?

The unemployment rate today is as low as it’s ever been. Job creation has been very rapid and intense, but we are now seeing some signs of a deceleration in employment. However, generally speaking, the situation on the job market is positive.

The ECB held a conference in Brussels in November. Alfred Kammer, Director of the European Department at the International Monetary Fund, was invited. He says projected growth for Europe is “medíocre”. Is that true?

Europe is at a crossroads and, as far as projected growth is concerned, defence is an important factor because it has to be in our hands. There is an outside threat: Russia has invaded Ukraine. So yes, Europe will have to spend more on defence, and this will have an impact on the fiscal and economic situation. There is another important element: the energy market. Europe needs to reduce its dependence on Russia and broaden the sources of its energy supplies in Europe. In addition, the European Commission has launched a very ambitious plan to simplify regulations that create problems for firms and deter investment in Europe. These are the main challenges that lie ahead and the attempts to address them.

Greece, Portugal and Spain have made and continue to make huge efforts towards fiscal consolidation and reducing their debt levels since the sovereign debt crisis in 2010 and 2011. If there is a lack of growth, in addition to the new requirement you mentioned to considerably increase spending, mainly on defence, what message would you send to those countries?

The situation has changed dramatically. I was the Spanish economics minister from November 2011 to 2018, and I can confirm that the current situation is the complete opposite of what it was then. Portugal is an example of how you can reduce the fiscal deficit and, subsequently, drastically reduce the debt-to-GDP ratio. The markets rewarded this with very low interest rates. Currently the spread between the Portuguese and German sovereign yields is lower than that of other countries with similar ratings, which is very positive.

Portugal’s debt burden has fallen considerably, but will hover around the 80% mark in the next few years, well above the 60% threshold set by the Stability and Growth Pact.

Yes, but it’s declining quite a lot, it’s remarkable. Portugal is forecast to have a public deficit of zero or close to zero in the coming years, a trend that will reduce the debt ratio. Along with Greece, Cyprus and Ireland, Portugal has put in a great deal of effort in this respect. In my view, fiscal drag is no longer an issue.

You mentioned the growth momentum of employment and immigration, how they contribute to the economy. Could the new policies to regulate or put a stop to immigrant labour act as an obstacle to growth?

We need to think about the pressures that exist on growth in Europe, such as an ageing population. Immigration is a hotly debated topic. But it is a necessary condition for growth, although it has to be orderly. Looking at Spain, for instance, the main reason it is strongly outperforming the average euro area growth rate is because Spain’s population is growing very quickly thanks to immigration flows. This also has positive spillover effects, not just in Spain.

António Costa, President of the European Council, stated that there is a housing crisis in Europe. What is the ECB’s take on this?

I think he’s right. Housing is one of the main problems in Europe, especially for young people. The cost of funding for construction, even for buying a home, is relatively contained, but the construction indicators are not good. There’s an increase in demand, but housing supply is not reacting as quickly. There are bottlenecks in the housebuilding sector, so the short-term solution until construction gains traction is the rental market. It may also be the case that regulation in the rental market is not conducive to increasing supply.

Would it make sense for banks to give cheaper loans to people who buy property to rent out?

The best solution in the near term is to introduce regulation that fosters supply in the rental market.

In the case of Novo Banco in Portugal, an agreement has been reached for it to be acquired by the French BPCE Group. What’s your take on this situation?

As you know, we at the ECB do not comment on specific cases and details, especially when there is a judicial investigation underway. Generally speaking, I think there is a clear improvement in terms of the Portuguese banking sector’s solvency, as there is for all of the other euro area banks. Portuguese banks are in a fairly good position in terms of solvency and liquidity.

In the case of non-banks, the crypto-assets market, the IMF observed that, at global level, there are problems and risks. Is this the case in Europe?

In Europe, activities of the non-bank sector, investment funds, hedge funds and the financial products they offer, are gaining market share, even though this development is more prominent in the United States. European banks are under very strict supervision and there’s a macroprudential framework. However, for non-bank institutions – apart from insurance firms and pension funds, that are regulated – regulation is not so strict. We recommend a macroprudential framework for non-banks.

If European legislators approve the regulation for the digital euro in 2026, the ECB will be able to start issuing the dematerialised currency in 2029. Is this a response to the rise of cryptocurrencies, as mentioned earlier?

No, it’s the digital evolution of banknotes. The digital euro stems from the evolution of physical cash into digital money, in line with the technology we all have at our disposal. It will be a means of payment that will not bear interest, it won’t compete with bank deposits, it won’t be an investment asset in any way. It will be a means of payment to facilitate transactions for European households in an increasingly digital world.

This is the last year of your mandate. What would you say were the most positive and the most challenging moments you have experienced as ECB Vice-President?

The most challenging were undoubtedly the pandemic and, subsequently, the increase in inflation triggered by the energy crisis after the invasion of Ukraine, when inflation exceeded 10%. In terms of good experiences, first, as the person responsible for financial stability, I can say that we have not had any significant turbulence or a financial crisis. There were specific pockets of vulnerability, but never crises like the one that affected the regional banks in the United States, or the situation that affected Credit Suisse in Switzerland. I think this is evidence of and the result of our supervision, our regulation and our monitoring and analyses.