ECB chief says eurozone more ‘resilient’ to shocks

FRANKFURT: The eurozone will face more frequent geopolitical shocks but growing “resilience” means it is better placed to cope, European Central Bank president Christine Lagarde said Monday.

From the Covid pandemic to wars in Ukraine and Iran, the ECB has had to repeatedly respond to global upheaval in recent years that has threatened its goal of keeping inflation stable.

Lagarde told the opening of an annual gathering of top central bankers in Portugal that “we face a charged geopolitical environment in which the frequency of major shocks looks to be rising.

“And these shocks are also taking on new forms: market access, energy supplies and critical minerals are increasingly being weaponised.”

But she insisted there were signs of growing strength in the 21-nation euro area that made it better able to weather such episodes.

“The resilience Europe has built means their effects on our economy are more contained,” she said, referring to the repeated shocks.

This was due to factors including the ECB’s own expanding toolbox, which made it nimbler, improvements in European institutions and better oversight of banks, Lagarde said.

This meant the eurozone had weathered recent upheaval, from the US tariff blitz to the Iran war energy shock, relatively well, she said.

She also defended the ECB’s decision to hike interest rates this month for the first time since 2023, in response to the Middle East war.

Some economists had criticised the move as unnecessary, and warned it could weigh on the struggling eurozone.

“Our rate increase was justified under every scenario considered,” she said.

“It was, by design, a robust decision. And nothing we have observed since then has called this assessment into question.”

The ECB Forum on Central Banking in Sintra, near Lisbon, brings together top central bankers — including US Federal Reserve chair Kevin Warsh and Bank of England governor Andrew Bailey — as well as economists over several days this week.