ECB’s Kazāks: “Sizeable and Pacey” Euro Strengthening Could Trigger Response

6 February 2026

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Martins Kazāks on Friday said that monetary policy remains “in a good place” and that only a “sizeable and pacey” euro appreciation would be likely to warrant a policy response, as uncertainty stays high.

Kazāks, who heads the Bank of Latvia, said recent growth and inflation readings remained broadly consistent with the baseline even if inflation has come in below the ECB’s forecast, adding that the “importance of a single data point should not be exaggerated.”

He described the euro area economy as resilient despite geopolitical and geoeconomic shifts, citing fourth quarter growth that was “a tad stronger than expected.”

Early signs of improvement in Germany were singled out as supportive, with fiscal stimulus beginning to take hold and industrial orders cited as the latest encouraging data point.

Recent free trade agreements were also presented as a modest positive for growth, while a tightening of corporate lending standards was “worrying,” he said.

China’s export-driven growth model was a more strategic challenge, according to Kazāks, who argued the country’s vast productive capacity would continue to “export its domestic imbalances.”

The durable answer lay in higher European productivity and elements of industrial policy to reduce vulnerabilities and choke points, including in rare earths, he said.

On inflation, Kazāks wrote that headline inflation sliding below 2% early this year had been anticipated and that risks “may still be largely balanced.”

With uncertainty elevated, he argued for a data-dependent, meeting-by-meeting approach with “full optionality,” and said the coming months warranted particular attention to NEIG inflation, wage dynamics, corporate profit margins, and productivity.

Turning to the exchange rate, he said the euro-dollar rate has moved within a relatively narrow corridor in recent months and that the effective exchange rate has been broadly flat.

The last sizeable euro strengthening occurred in the second quarter of 2025 and now appears lasting, he said, adding that—given lags—the peak disinflationary effect should still be felt later this spring and is “baked into” the baseline forecast.

He reiterated that the Governing Council does not target any exchange-rate level, but said a “sizeable and pacey” strengthening would weaken competitiveness and activity, lowering the inflation outlook and potentially prompting a policy response.

The post concluded with a call for structural reforms; Kazāks argued that monetary policy is not the main lever at present and that Europe needs stronger fundamentals to lift living standards and resilience in a volatile geopolitical environment.