By David Barwick – FRANKFURT (Econostream) – Malta is small, and Alexander Demarco is new enough as a European Central Bank Governing Council member that markets might overlook him. That would be a mistake.
Demarco may have taken office as governor of the Central Bank of Malta only on January 1, but he is now in his 42nd year with the institution. He also spent most of the past year as acting governor while his predecessor was on leave, so the newest thing about his current position is the office.
It shows: without notes, without the support or even presence of any aides and without hesitation, Demarco reels off all the relevant facts and statistics in the course of an hour-long, technically detailed interview on the ECB’s monetary policy, his first major one in his new role.
His account is clear, thorough and frank. And on the map he provides of developments that could force a policy reassessment, most arrows point in the direction of further easing. “Good place” is a conditional, not to be confused with a promise.
Demarco’s baseline is straightforward: if the policy environment does not change, the stance does not need to change either, and rates can remain where they are—potentially for “quite some time.”
But he is not assuming the environment will stand still. The interview is a catalog of plausible ways it could shift.
On inflation, Demarco’s most important contribution is the line he draws between a one-off undershoot and a persistent one. A downside surprise is not, by itself, a regime shift, but repetition migrates from “data” into the projection and from there into the reaction function.
Without denying upside risks, he spends most of his time stress-testing the disinflationary ones: a non-negligible undershoot, slackening domestic cost pressure and imported disinflation via trade.
The China channel is the most obvious. Chinese penetration of the region is no abstract geopolitical talking point, but a live variable for euro area goods prices. It offers a credible mechanism by which inflation can drift lower without any dramatic collapse in activity.
He pairs this with a theme that may be underweighted in public ECB debate: the confidence channel of uncertainty. Trade tensions and the “weaponization of trade” sap confidence, complicate investment planning, and weigh on growth.
In other words, he is describing an easing pathway that does not require a recession to materialize. It could be traversed by a sequence of smaller disappointments—each individually defensible, and together sufficient to knock the projections off track.
His emphasis on tightening financing conditions fits the pattern. He is not claiming a collapse of credit; he is saying that direction matters when uncertainty is already elevated. In a fragile environment, even modest additional tightening could do outsized damage at the margin.
Wages are the other piece that makes his framework cohere. Demarco underscores deceleration, noting that wage growth is “clearly slowing down,” and treats it as a central input into the medium-term inflation outlook rather than a detail to be briefly acknowledged.
Overall, the interview conveys less a suggestion of satisfaction with the situation than a disciplined warning against complacency. The ECB may be in a good place, but it is a good place with a plainly marked exit.
That narrows the distance between “hold” and “cut.” The popular narrative still assumes that the threshold for renewed easing is high and that the timeline must be long. Demarco’s framework suggests a forecast-based threshold, and forecasts can move fast. The March projection round, which he flags as a key checkpoint, is where that could become visible.
This combination—technical fluency, institutional memory, and an unusually clean description of conditionality—makes him worth taking seriously early. Demarco is relatively clear about the sequence by which a few small surprises can become a revised forecast—and then a different policy setting.