Nagel: Inflation risks persist, Europe must strengthen
Deutsche Bundesbank President Joachim Nagel addressed global challenges, emphasizing the need for a stable and strong Europe. He highlighted persistent inflation risks from geopolitical conflicts and called for accelerated European integration, including a savings and investments union and the digital euro.
Geopolitical shocks fuel inflation
Nagel noted that recent geopolitical upheavals, particularly the conflict in the Middle East, have pushed oil and gas prices higher, impacting consumer prices.
Euro area inflation rose to 2.6 percent in March and an estimated 3.0 percent in April, the highest rate since September 2023.
While monetary policy cannot directly resolve supply chain disruptions, it can influence medium-term inflation.
The ECB Governing Council recently held key interest rates steady, adopting a vigilant, wait-and-see approach.
Nagel indicated that if the inflation outlook does not improve markedly by the June monetary policy meeting, an interest rate hike would be warranted.
He recalled the ECB's decisive action of ten rate hikes between July 2022 and September 2023, followed by eight cuts.
Europe's response to fragmentation
Nagel stressed that in a world of persistent uncertainty and geoeconomic fragmentation, Europe must make its economic policy strategies more robust.
He cited reports from Enrico Letta and Mario Draghi calling for significant simplification of EU regulations to boost competitiveness and better exploit the single market's potential.
The European Commission's proposal for a new EU-wide regime in corporate law aims to facilitate the growth of young, innovative enterprises.
Nagel also highlighted the urgency of decreasing the EU's dependence on imported energy, defence, and digitalisation, particularly AI.
He emphasized the need for a savings and investments union to better channel Europe's high savings into innovation and productivity, welcoming recent commitments to adopt key elements by the end of 2027.
Digital euro for payment sovereignty
Nagel underscored the critical need for European sovereignty in payments, noting that two-thirds of euro area card payments are settled via non-European systems.
This dependence, he argued, is as risky as those in defence or AI, citing instances where US sanctions blocked accounts.
The digital euro is presented as a key project to ensure Europe is 'at the wheel' of its payment infrastructure.
This initiative aims to reduce critical dependencies and strengthen Europe's strategic autonomy in a vital economic area.