ECB Insight: No Fault Line Yet, Just a Few Faint Cracks

23 September 2025

By David Barwick – FRANKFURT (Econostream) – The deluge of recent European Central Bank communication suggests a Governing Council still largely comfortable with its current stance, even as a few members leave the door ajar for more easing. The pattern emerging from speeches and interviews over the past days is less about fundamentally new perspectives than about positioning, nuance and subtle divergences on risks.

We write “largely comfortable” mainly because of Lithuania’s Gediminas Šimkus. After hinting at the mere possibility of a December rate cut in our interview shortly before the last Council meeting, he now openly urges one on risk-management grounds, warning of undershooting the 2% target. His language has clearly become firmer.

Still, Šimkus remains an outlier for the moment, and we find somewhat more striking the comments by his Baltic colleague, Latvia’s Mārtiņš Kazāks, who seems to be straddling both camps.

Dovish during the easing phase but previously hawkish, Kazāks advised in a Bloomberg interview against “jump[ing] around at each and every meeting”, signed on to the idea that “minor deviations can easily be looked through” and declared the ECB to have “delivered on our 2% target.”

And yet – as he had already indicated a week earlier – a December cut was still imaginable, that meeting being “much richer in terms of data.” He also now seems warm to the idea of an insurance cut, calling this “an option and … up to discussion.”

On Latvian television just five days earlier, Kazāks also didn’t categorically reject further easing, but also didn’t frame it as a way of pre-empting unwanted developments, instead conditioning it on clear deterioration of the situation (“should the economy become weaker, if inflation starts to decline very significantly”).

For us, his most recent comments have grown a touch friendlier towards another cut. While it may be that his assessment of this option shifted, it is also worth noting that ahead of upcoming Executive Board appointments, appearing hawkish is less advantageous for a reasonably prominent national central bank governor from a new member state.

As a sign of how much of an outlier Šimkus is for now, even Greece’s Yannis Stournaras, one of the ECB’s most dovish members, praised the “soft landing” and said that monetary policy had reached a “good equilibrium.”

That stance surely reflects in part Greece’s unaccustomed faster growth and higher inflation compared with the euro area as a whole, but there may also be some personal vindication behind it: Stournaras forecast a 2% terminal rate months ago and, absent clear need, could be disinclined to press for an extra 25 bp.

Most others sound content as well. ECB President Christine Lagarde declared inflation on target and uncertainty halved (we assume she didn’t mean this too literally), Malta’s Edward Scicluna described rates as “fine where they are,” and Bundesbank chief Joachim Nagel downplayed the euro’s appreciation as leaving competitiveness merely neutral.

The latter point is of some interest and highlights another potential source of more pronounced future divergence. With the Fed having embarked on a course of easing just as the ECB has putatively concluded its cycle, downplaying the stronger euro entails the risk of eating one’s words at a later stage.

Still, Spain’s José Luis Escrivá likewise dismissed exchange rate worries, suggesting that the euro would need to climb further for the issue to gain more traction. And yet, despite generally endorsing the current policy stance, Scicluna was clearly more concerned about the common currency’s strength, highlighting the potential for a genuine fault line over foreign exchange sensitivity.

Then there is the dog that hasn’t barked. Chief Economist Philip Lane — normally a prolific explainer of ECB thinking — has been conspicuously quiet. In a panel discussion yesterday evening he studiously avoided substantive remarks.

One plausible conjecture is that Lane, who last contributed meaningfully to public discussion of ECB monetary policy in early July, prefers not to complicate the current messaging equilibrium without the assurance of greater certainty: any hint from him could be over-interpreted as signaling the next move.

Either way, his silence is striking at a moment when most colleagues are signaling satisfaction with the status quo. All the more so given that fellow Executive Board member Isabel Schnabel has recently laid out her views in detail repeatedly, in effect dominating discourse (or, in one observer’s words, “out-chief-economisting” the putative chief economist).

Taken together, the messaging points to a Governing Council enjoying a rare moment of balance overall, confident that inflation is near target, wary of both complacency and overreaction.

December’s forecasts could test that poise: a meaningful undershoot could reopen the easing debate, while fresh upside surprises or euro volatility could quickly shift the narrative. For now, policymakers seem intent on signaling steadiness — and Lane’s quietness may itself be part of that signal while simultaneously underscoring the risk of a sudden shift.