De Guindos warns of geopolitical risks, urges European integration

The euro area has faced successive crises since the pandemic, with Estonia particularly impacted by the energy price surge following Russia's invasion of Ukraine, leading to 25% inflation in August 2022.

Despite these shocks, the euro area grew by 1.5% in 2025, supported by domestic demand, low unemployment, and rising real incomes.

This resilience occurred amidst profound uncertainty and geopolitical transformations, including shifts in US trade policy and an erosion of the multilateral system.

A new paradigm of geoeconomic fragmentation challenges the rule of law.

The war in the Middle East is an acute materialisation of these risks, threatening a supply shock as 20% of global oil and LNG transits the Strait of Hormuz.

Its repercussions for the global economy and financial stability depend on its spread and duration.

While euro area financial sector spillovers remain contained, the Middle East conflict could trigger systemic stress, particularly for leveraged borrowers and sovereigns, amid high asset valuations.

This war significantly increases uncertainty for growth and inflation.

ECB staff now project euro area growth to drop below 1% this year, with inflation averaging 2.6% before converging to 2%.

Despite this, the Governing Council kept key interest rates unchanged, maintaining a data-dependent, meeting-by-meeting approach.

Scenario analysis indicates that a more persistent energy shock could lead to higher inflation and lower growth compared to baseline projections.