ECB Vice-President De Guindos Discusses Monetary Policy Amidst Global Uncertainty
Luis de Guindos elaborates on trade negotiations, inflation outlook, and fiscal policy strategies during an interview.
In an interview on June 12, 2025, Luis de Guindos, Vice-President of the European Central Bank (ECB), addressed key concerns surrounding the ECB’s monetary policy, inflation forecasts, and the broader economic landscape.
He acknowledged the significant uncertainty stemming from ongoing trade negotiations, indicating that the outcomes of such discussions could heavily influence future economic conditions in Europe.
De Guindos noted that the ECB’s recent projections include alternative scenarios based on different trade policy outcomes, specifically considering the impacts of potential tariffs.
He emphasized that the final results of trade negotiations are critical for understanding inflation and growth forecasts, stating that a 10% tariff under the baseline scenario and higher tariffs in an adverse scenario could alter the economic outlook.
In the current economic climate, where inflation was projected to dip below the ECB's target before returning to the 2% goal, de Guindos was keen to highlight the nuances of inflationary forces.
He indicated that while tariffs are initially inflationary due to added costs on imports, they can suppress demand, leading to potential decreases in both growth and inflation over time.
He discussed the risk factors influencing inflation rates, indicating that while the immediate outlook may show lower inflation, longer-term factors such as the potential for a fragmented global economy could generate inflationary pressures in the future.
Current estimates indicated inflation could reach 1.4% in the first quarter of 2026, which de Guindos suggested would not substantially destabilize wage-setting expectations.
On the topic of fiscal policy, de Guindos stressed its importance amid rising defense expenditures in Europe.
He observed that while the need for increased defense spending is clear, the EU's fiscal space is limited, necessitating careful consideration of how such expenditures are financed.
He expressed concern regarding the U.S. fiscal policy landscape, noting that an increase in U.S. deficits could impact global financial conditions, including yield rates in Europe.
Addressing the potential for a European safe asset, de Guindos acknowledged the academic interest in this area but underscored the prerequisite of further integration and progress on mechanisms such as the Capital Markets Union and the Banking Union before significant advancements could occur.
Regarding the ECB’s reserves, he reiterated confidence in their safety, particularly concerning gold reserves stored abroad.
He noted a growing trend among central banks to diversify their reserves, citing geopolitical risks as a motivator for countries considering assets like gold.
De Guindos also referenced the nuances of the euro’s exchange rate in relation to trade and growth, indicating that while current euro valuations are not emerging as a significant barrier to economic expansion, rapid fluctuations in currency values warrant ongoing monitoring.
Lastly, he highlighted the role of the ECB amidst global monetary frameworks, particularly the cooperative efforts with the People's Bank of China through existing monetary arrangements, signifying the importance of a comprehensive approach to trade policy that considers broader implications beyond bilateral tariffs.
He acknowledged the significant uncertainty stemming from ongoing trade negotiations, indicating that the outcomes of such discussions could heavily influence future economic conditions in Europe.
De Guindos noted that the ECB’s recent projections include alternative scenarios based on different trade policy outcomes, specifically considering the impacts of potential tariffs.
He emphasized that the final results of trade negotiations are critical for understanding inflation and growth forecasts, stating that a 10% tariff under the baseline scenario and higher tariffs in an adverse scenario could alter the economic outlook.
In the current economic climate, where inflation was projected to dip below the ECB's target before returning to the 2% goal, de Guindos was keen to highlight the nuances of inflationary forces.
He indicated that while tariffs are initially inflationary due to added costs on imports, they can suppress demand, leading to potential decreases in both growth and inflation over time.
He discussed the risk factors influencing inflation rates, indicating that while the immediate outlook may show lower inflation, longer-term factors such as the potential for a fragmented global economy could generate inflationary pressures in the future.
Current estimates indicated inflation could reach 1.4% in the first quarter of 2026, which de Guindos suggested would not substantially destabilize wage-setting expectations.
On the topic of fiscal policy, de Guindos stressed its importance amid rising defense expenditures in Europe.
He observed that while the need for increased defense spending is clear, the EU's fiscal space is limited, necessitating careful consideration of how such expenditures are financed.
He expressed concern regarding the U.S. fiscal policy landscape, noting that an increase in U.S. deficits could impact global financial conditions, including yield rates in Europe.
Addressing the potential for a European safe asset, de Guindos acknowledged the academic interest in this area but underscored the prerequisite of further integration and progress on mechanisms such as the Capital Markets Union and the Banking Union before significant advancements could occur.
Regarding the ECB’s reserves, he reiterated confidence in their safety, particularly concerning gold reserves stored abroad.
He noted a growing trend among central banks to diversify their reserves, citing geopolitical risks as a motivator for countries considering assets like gold.
De Guindos also referenced the nuances of the euro’s exchange rate in relation to trade and growth, indicating that while current euro valuations are not emerging as a significant barrier to economic expansion, rapid fluctuations in currency values warrant ongoing monitoring.
Lastly, he highlighted the role of the ECB amidst global monetary frameworks, particularly the cooperative efforts with the People's Bank of China through existing monetary arrangements, signifying the importance of a comprehensive approach to trade policy that considers broader implications beyond bilateral tariffs.
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