ECB Insight: Listening to What Was Not Said at Schnabel’s London Appearance

28 March 2025

By David Barwick – LONDON (Econostream) – Observers of the European Central Bank who looked to Thursday evening’s event in the British capital with Executive Board member Isabel Schnabel for clues about what the ECB is likely to do next may have been disappointed by the ostensible lack of such hints.

We on the other hand think that precisely the lack of such hints may have held meaning.

We suspect that the decision that Schnabel would avoid the topic of current monetary policy was made relatively late; certainly Econostream signed up to go to London for this specific occasion in the expectation of gleaning explicit insights into what might transpire in the near future.

Put another way, we thought the annual Mais lecture would live up to its billing by Bayes Business School, at which it took place, as ‘the City of London’s foremost event for the banking and finance community’.

While financial literacy is hardly unimportant and Schnabel’s intervention was in fact quite good in that context, the bar may have been set too high to be reached by any talk on any topic of relatively little interest to financial markets, and that includes financial literacy.

So it was that we found ourselves pondering why Schnabel all evening so diligently skirted the more promising territory of the issue du jour, namely whether the Governing Council should pause or cut next month, or anything remotely bearing on that.

In coming up with an answer, we note that Schnabel is one of the Council’s most respected members, whilst being an Executive Board member confers on her a greater duty than national central bank governors have to keep the institution’s interests in mind.

She does not have the freedom of, say, Austrian National Bank Governor Robert Holzmann.

What she does have in addition to a large portion of institutional responsibility is a reputation to safeguard. As it happens, the two considerations overlap heavily. Ultimately, she has to balance consistency in her remarks with the need to ensure that this is not at the cost of misleading markets.

It is widely assumed, also by us, that Schnabel is inclined to favour a pause next month, which is why in both of our tallies of the Governing Council (one on 10 March and the other on 24 March) we consigned her to the corresponding group of policymakers.

That classification is owed not simply to the longstanding perception that she is on the hawkish side, but to recent remarks such as ‘we can no longer say with confidence that our policy is restrictive’ (25 February) or ‘The risk that inflation will remain above 2% longer than expected is higher than the risk that it falls sustainably below 2%’ (8 March).

That she may be leaning in the direction of a pause on 17 April doesn’t mean that she hasn’t also expressed confidence in the recent past about the outlook for key variables of ECB decision-making. But this has also been paired with the view that ‘we shouldn't rush’ (25 February).

If indeed Schnabel continues to feel a pause in April would be preferable, then even if we expected that option to prevail, we fail to see what she would stand to gain at the moment by being vocal about it, given that she has already argued for a hawkish approach without appearing dogmatic or isolating herself.

Doubling down now by talking up the virtues of a pause would offer scant upside, but there would be a downside in that it would tend to suggest that she assigns higher chances to such an outcome than we think are currently warranted, as we made clear again yesterday.

With the wind blowing in the opposite direction, a cautious Schnabel was well-advised to sacrifice the ambitious pretensions of yesterday’s occasion to the imperative of not encouraging unrealistic expectations about the decision three weeks hence – and if such expectations are unrealistic, she would know better than almost anyone else and would be likely at least not to be inconsistent in her messaging.

The result: an appearance in which she shunned current monetary policy like the devil holy water.

But the important point is precisely that this reasoning makes the most sense if, as we posit, a cut in April is what the ECB is currently setting the stage for. For us, this seems evident. If it weren’t so for Schnabel as well, then the ideal speech yesterday evening might have been rather different.