ECB’s Nagel Warns of AI-Driven Market Risks, Cautions Against Deregulation

13 November 2025

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel said in an interview published Thursday that extreme optimism around artificial intelligence technology had created concentration risks in equity markets and that valuations could fall sharply.

Nagel, who heads the Deutsche Bundesbank, told German newsweekly Der Spiegel that expectations for medium-term tech earnings were “running wild,” adding that the benefits of AI remained uncertain and that investors needed adequate diversification.

He said the period following the April tariff announcement in the United States had brought markets close to a “major crisis,” though risk appetite returned once investors believed the disputes would be resolved. Still, he questioned the health of a market in which only a handful of companies were driving performance.

Financial stability risks remained elevated, he said, citing the rapid growth and opacity of private-credit funds. Some segments showed “gold rush fever,” and better international data were needed to identify vulnerabilities, he said.

Nagel rejected arguments for competitive deregulation in response to US plans to pare back financial supervision, calling such an approach a proven path to instability. Maintaining strong rules was a “locational advantage,” he said, and Europe should resist pressure from the banking lobby.

Germany’s large debt-financed fiscal package surprised him, Nagel said, though he avoided assigning a grade to the government’s performance. Structural reforms were necessary, and impatience was growing, he added, noting that modernisation and cutting red tape remained slow, difficult tasks.

Despite the economy’s stagnation, he said Germany’s fiscal measures would begin stimulating activity in 2026. Growth of 0.7% was expected next year and above 1% in 2027, he said.

Nagel acknowledged misjudging the extent of Germany’s structural problems in earlier forecasts and said global uncertainty—driven partly by US developments—had risen sharply. On exchange rates, he noted that the euro’s appreciation needed to be separated into “dynamics and levels” and remained close to its historical average.

Germany’s economic model faced challenges, he said, but the country should not underestimate its adaptability. Europe should insist more strongly on global trading rules, particularly with respect to China, he said.

Nagel defended his proposal to reform the national debt brake, saying the current rule could not ensure fiscal soundness. His plan would allow higher deficits initially, followed by a gradual reduction from 2030 and a return toward 60% of GDP over decades.

He said inflation should not be significantly affected by the spending program, given weak construction demand and expected increases in capacity.

Nagel strongly supported the ECB’s digital euro project, arguing it would improve independence from foreign payment providers and offer better data protection than private systems. A private sector alternative relying on dollar-backed stablecoins would raise financial-stability risks, he said.

Attempts in the United States to weaken the Federal Reserve’s independence were alarming, he said, adding that central banks must consider political developments more broadly than in past decades.

On the ECB presidency, Nagel said every Governing Council member “probably has the right skills” for the role but did not indicate interest directly. He said he had worked since the beginning of his term to “embed the Bundesbank firmly into the Eurosystem.”

Nagel also addressed criticism of the Bundesbank’s renovation plans, saying the project had been significantly scaled back. A decision on whether the institution returns to its landmark Frankfurt headquarters would come in early 2026, he said.