Lagarde warns of energy risks and French fiscal divergence

Lagarde emphasized that the European Central Bank remains focused on price stability as energy supply shocks linked to Middle East tensions threaten both inflation and activity.

Following policy rate increases in June and September, the ECB expects euro area growth of 0.9 percent this year, compared to 0.5 percent for France.

Lagarde noted that Europe's traditional economic model, previously anchored by cheap Russian energy, export demand from China and the US security umbrella, faces fundamental disruption.

“Our task is rather to prevent a supply shock from feeding through the economy durably and driving up inflation,” Lagarde said, reiterating that the ECB must monitor economic activity closely.

Lagarde warned that French debt approaching 120 percent of GDP presents serious risks, especially as public borrowing competes with capital demand for artificial intelligence investments.

She rejected calls for debt cancellation as legally and financially dangerous.

Lagarde also reaffirmed the ECB's integration of climate risks into balance sheet assessments and banking supervision.

Addressing her ECB mandate, Lagarde dismissed running for the French presidency and indicated she will remain at the central bank into 2027.