De Guindos warns of Middle East conflict impact, stresses data-dependent policy
ECB Vice-President Luis de Guindos stated that the Middle East conflict will have a strong impact on euro area growth and inflation. He emphasized the ECB's data-dependent approach to future interest rate decisions.
Uncertainty's Shadow on Euro Area Outlook
De Guindos stated that the Middle East conflict will have a strong impact on euro area growth and inflation, with the severity depending on its duration and spread.
ECB projections assume energy prices peak in Q2 2026 in the baseline scenario, with an adverse scenario extending disruptions to Q3 2026.
Even in severe scenarios, the ECB does not expect a recession, forecasting positive growth.
Regarding monetary policy, de Guindos reiterated a data-dependent approach, monitoring headline and underlying inflation, energy and food prices, and inflation expectations.
"We are ready to respond as necessary," he said, emphasizing that the ECB is not pre-committing to a particular rate path and will assess new data at the April Governing Council meeting.
Fiscal Prudence and European Autonomy
De Guindos stressed the importance of perceiving the current shock as transitory to avoid adverse second-round effects.
He noted new fiscal rules and increased defence spending commitments, recommending temporary and targeted fiscal measures for vulnerable groups.
"The financial system must prepare for a prolonged period of elevated interest rates and subdued growth," de Guindos warned.
He highlighted limited fiscal capacity, with average public deficits at 3% of GDP and public debt near 90%.
De Guindos also advocated for greater European independence in defence, technology, and payment methods, citing the need to accelerate the digital euro's roll-out.
Spain's Strengths, Europe's Fault Lines
De Guindos's interview offers a candid view into the ECB's current tightrope walk between geopolitical shocks and domestic policy challenges.
While Spain shows resilience, his remarks implicitly underscore broader European vulnerabilities in fiscal discipline and strategic autonomy.
This highlights that immediate crisis management is paramount, but long-term structural reforms remain critical for the euro area's stability.
Source: Luis de Guindos: Interview with El Mundo
IN: