ECB’s Stournaras: Economy Much Weaker Than Expected at Previous Council Meeting

31 October 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Yannis Stournaras on Tuesday said that economic developments had lagged considerably behind expectations of the ECB at the September Council meeting.

In an interview with German business daily Handelsblatt also published on the website of the Bank of Greece, which he heads, Stournaras said, ‘So far, the path of disinflation meets our expectations. But the economy is much weaker than we thought in September. This is the main difference compared to the last meeting. Financial conditions are also slightly tighter than expected.’

The role played in the discussion at the last Council meeting by the violence in the Middle East was ‘[a]n important one’, he said, and the further uncertainty generated by events had ‘added up to the decision of becoming more cautious.’

A worsening crisis could boost near-term inflation via oil prices, he said. In the medium term, however, stagnation could be the result, as well as more migrants in Europe, he said.

As before, he expressed the view that the ECB had reached the terminal rate. The lack of discussion of this so far at the level of the Council made it unclear whether most of his colleagues agreed, he said.

‘With the additional uncertainty in the Middle East, it is even more difficult to say’ when rates can go down, he said. ‘Personally, again, I would start thinking about reducing interest rates, if inflation in the middle of 2024 passed the threshold of the 3% to the south in a permanent, sustainable way.’

As for quantitative tightening, ‘the pace of reduction of the Eurosystem balance sheet is the strongest among the major central banks in the world’, he said. ‘Why should we increase it even more given that economic uncertainty worldwide has increased?’