Interview with La Stampa

Interview with Philip R. Lane, Member of the Executive Board of the ECB, conducted by Fabrizio Goria on 12 January 2026

16 January 2026

Two years ago the euro area went through one of the most severe inflationary shocks in its recent history. What is the situation today?

In 2021 and 2022 we had this very unusual and severe surge in inflation. The ECB responded with a forceful monetary policy tightening cycle, which has been successful in bringing inflation back towards our 2% target. This year is an important transition phase. Headline inflation is already around 2%, but if we look at the composition, we see that inflation excluding energy is still around 2.5%, while energy inflation is actually negative.

What should we expect?

Over the course of this year we expect to see a transition towards a more sustainable 2% inflation rate, where both services inflation and wage inflation come down. This puts the stabilisation of inflation at our 2 per cent target on a more secure basis. Our December projections have non-energy inflation at around 2% through 2026, 2027 and 2028 and only minor deviations of headline inflation from 2%.

What is the main macroeconomic risk for the ECB in 2026: a renewed acceleration in inflation or a sharper slowdown in economic activity?

We put a lot of emphasis on our risk assessment. For a central bank it is important not to turn risk analysis into a ranking exercise but to instead identify the major risk factors, which we do in our monetary policy statement. We look at the major risk factors and assess them all the time. So, rather than just looking at the number one risk, we look at a range of risk factors. That said, by and large, I would say that the main risk factors for the euro area are external: risks to the growth of the world economy as well as the evolution of geopolitical tensions, and the way these interact with global trade policies.

Markets remain very concerned about weak growth in the euro area.

The last several years have been very difficult for the European economy. In the 2023-25 period we experienced a mix of factors: high inflation reduced real incomes of households, weighing on consumption; the very high energy prices hurt firms’ costs, damaging investment; and the fact that interest rates went up quite a lot contributed to this weak environment.

On top of that, we have changes in the global trade environment. Looking back at 2023, 2024 and 2025, it is clear that the economic performance in quite a few European countries has been weak, but the aggregate euro area economy has been growing and unemployment has remained low.

But?

This year I think an important transition is under way. We have seen a sustained decline in energy prices over the past year or so. And starting this year especially we see greater fiscal support in Germany, which will help growth. And we have brought interest rates down from 4% in June 2024 to 2% in June 2025. Monetary policy operates with lags, so we think this will feed into a stronger construction sector, for example, this year and next. So I think we're going to see a stronger cyclical recovery in the European economy in 2026 and 2027. Nevertheless, a structural issue is that Europe’s potential growth rate is not high. And that is why it is essential to accelerate the reforms recommended in Mario Draghi’s report on the future of European competitiveness and Enrico Letta’s report on empowering the Single Market. There is an urgent need to improve the growth rate of the European economy.

How confident are you that the current level of interest rates is appropriate?

It is useful to look back a bit at where we came from. Before the pandemic, the ECB’s deposit facility rate was negative, at -0.5%. Between June 2022 and June 2024 it rose to 4%, before declining to 2% in June 2025. Today we are in a situation where both the nominal interest rate and inflation are around 2%, so the inflation-adjusted real interest rate is close to zero and growth prospects are improving.

So?

Under these circumstances, no one expects very large movements in interest rates. The pros and cons of the current 2% rate versus slightly lower or slightly higher is a more “normal” monetary policy debate. In our baseline we foresee, indeed, a remarkably stable situation. But we live in a world characterised by a high level of uncertainty. That’s why we emphasise that if we see developments that take us away from our baseline, we will adjust monetary policy as needed.

Under what circumstances might the ECB raise interest rates again?

Our baseline scenario, which we set out in December, envisages inflation more or less at target for several years, growth close to potential and low and declining unemployment. In these circumstances, there is no near term interest rate debate. The current level of the interest rate delivers the baseline for the next several years. But if we see developments in either direction, we will react. In one direction, a lot of the developments that could push inflation below the target on a medium term basis would involve a slowdown in the economy. In the other direction, developments that push inflation above our medium term target would typically involve an acceleration in the economy. But let me emphasise that in our baseline the economy is growing in the neighbourhood of potential growth. So to be above the baseline we would have to see a significant acceleration in the economy. Another scenario would be a major disruption in the world economy, more like we saw in 2021-2022, creating major bottlenecks and disrupting global supply chains. But this is more of a nightmarish scenario, which also has a recessionary force.

You mentioned fragmentation. About a year on from the US Administration’s so-called “Liberation Day”, global trade remains under pressure. How have tariffs affected growth and inflation prospects in the euro area? Have there been any second-round effects?

It is only January, it has not even been a year. The decision on the actual bilateral US-EU tariffs was taken last summer. Overall, for the United States, effective tariffs turned out to be lower than feared at the time of the initial announcement last April, thanks to exemptions and reversals in key sectors. Certainly, for many European firms this was a damaging shock, but strong US domestic demand partly offset the effect, allowing many companies to pass on costs to American customers. A crucial factor was the behaviour of the US dollar: last year we did not see dollar strength, but rather weakness. Investors reassessed their US dollar positions following the new policies of the US Administration, leading the euro to appreciate from around USD 1.08 last March to as high as USD 1.18 in June, before stabilising at around USD 1.16-USD 1.18. This appreciation is a disinflationary effect for the euro area.

If this fragmentation among the United States, Europe, China and emerging economies were to become structural, how would it change the ECB’s view of the outlook for medium-term inflation?

We are seeing a move away from a pure multilateral approach to globalisation, but I do not see a return to full isolationism. All countries recognise that it's very important to maintain a very large amount of international trade. We saw the United States pull back from some of the most important tariffs on China. We've also seen Europe looking for new trade deals like Mercosur. So what we have now is a multi-tiered trading system. For us, this probably means greater volatility. We need to understand whether a shock is transitory or medium-term. These factors affect both demand and supply: if a firm loses an export market, it cuts investment (a negative demand effect); if it loses a key supplier, its productive capacity declines (a supply effect). If these factors were assessed to move inflation in a persistent way in either direction, monetary policy would be affected.

How much weight does Federal Reserve policy carry in the ECB’s decision-making today?

I would say there is broad consensus that the best outcome for the global economy is for each central bank to do its job. So the US Federal Reserve System delivers on its price stability objective and its employment mandate. If the Federal Reserve is focused on its mandate, this allows us at the ECB to focus on our mandate. Of course, we take into account what happens in the United States, but we are not a dollarised continent. What matters for us are financial and macroeconomic conditions in the euro area. We control the movements of our policy rate. Naturally, Fed decisions have effects on global markets: these influence long-term interest rates, international financial conditions and exchange rates. This matters but what really matters for us are the European fundamentals. If the Federal Reserve delivers on its mandate, this is welcome for us. It would be economically difficult for us is if inflation in the US did not return to target, or if financial conditions in the United States spilled over to a rising term premium. A reassessment of the future role of the dollar, could also constitute a kind of financial shock to the euro. So there are scenarios where, if the Federal Reserve departed from its mandate, that would create a problem. But again, I think the track record shows that the Federal Open Market Committee has really focused on its mandate

Speaking of the Federal Reserve, attacks against Jerome Powell continue. How crucial is central bank independence today?

We have decades of empirical evidence showing that monetary policy is best conducted on an independent, technocratic basis. Everyone is better off if inflation being maintained around the 2% target. Central bank independence insulates monetary policy decisions from short-term political pressures, within the framework of a clear legal mandate that guides decision-making.

Staying on the topic of the United States, equity market valuations are at record highs. Do you fear a sharp correction? And if so, what would the implications be for Europe?

There is a genuine potential productivity gain from artificial intelligence (AI) and the market is reacting accordingly, by identifying which firms are likely to win from that. But we can distinguish two correction scenarios. Today we see leading companies investing heavily in artificial intelligence, and the market is rewarding those it believes will benefit. If the underlying potential of AI remains intact, but investors change their minds about who will “win” the race, we would see a financial correction that would affect those who hold these stocks, including European investors, but with limited economic impact.

But?

The worst-case scenario is if it were to emerge that AI is not the “game changer” everyone expects. If AI were to disappoint in terms of productivity gains and cost reductions, then on top of a market correction we would also see an economic correction, with a big pullback in investment. At the moment it is difficult to see an immediate trigger, but it could happen. However, all of this will play out over a number of years.

We have spoken about a world in transition. Does China, with its excess productive capacity, represent a disinflationary force or a structural risk?

In Europe we have clearly seen lower import prices from China. This means European firms competing around the world also have to modify their prices if they want to maintain market share. On top of that the euro has appreciated. What the world wants to see is that the expansion of China’s productive capacity is accompanied by a strengthening of domestic demand. A more balanced global economy requires the expansion of supply in China to go hand in hand with greater export opportunities to the Chinese market, including for services.

Europe has a competitiveness problem, especially in manufacturing. How much of this is a macroeconomic issue and how much is structural and therefore beyond the ECB’s reach?

Competitiveness may not be the best word, I would look at it in terms of “dynamism”. Today the most dynamic sector is technology, and Europe does not have a sufficiently strong presence in this area. Moreover, China has moved up the technological complexity ladder, offering credible alternatives to European products. We need to make the European economy more growth-oriented, reducing reliance on exports and focusing more on domestic demand. We do see positive signals: European firms are beginning to adapt, for example by investing in AI. It is crucial to identify use cases where AI can improve productivity and to respond dynamically to this new global environment.

What are the three main priorities for the euro area in 2026?

First, strengthening the Single Market, particularly for services, energy and telecommunications. Second, completing the savings and investments union to improve financing for the European economy. And, third, advancing the digital euro project, which I increasingly see as an essential component of Europe’s monetary autonomy in a rapidly transforming financial system.