By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Yannis Stournaras said on Monday that the ECB would have to respond quickly if the latest energy shock began to generate second-round effects or push inflation expectations off course, even as the euro area entered the episode from a stronger starting position than in 2021-2022.

Stournaras, who heads the Bank of Greece, said in a speech to The Economist Romania Government Roundtable that the war in the Middle East had triggered “a new adverse external supply shock” for Europe and that the resulting energy-price spike was “stagflationary in nature.”

He said the ECB’s March baseline still pointed to a marked deterioration in the short-term inflation outlook, with headline inflation projected at 3.1% in the second quarter and 2.8% in the third quarter, while “the medium-term inflation outlook has not shifted materially away from our 2% objective.”

At the same time, he warned that a prolonged conflict would create a more adverse environment than in the baseline, with “weaker growth, and higher and more persistent inflation.”

“The policy implication is clear,” he said. “If signs were to emerge that second-round effects are gaining traction, or that inflation expectations are beginning to drift, the ECB will have to respond quickly to help ensure that inflationary pressures do not become entrenched in expectations.”

Stournaras said the current episode could prove harder to manage than the 2021-2022 inflation surge because the memory of double-digit inflation was now recent and because households and firms might be less inclined to see central banks as fully able to insulate the economy from repeated supply shocks.

Even so, he argued that the ECB was entering the new shock from “a stronger starting position.” Inflation had been around target for almost a year, he said, and had slightly undershot 2% in the first two months of 2026, while the deposit facility rate, now at 2.0%, was “in neutral territory.”

“This provides some slack for future rate tightening,” he said.

Stournaras also said the Governing Council was better equipped than four years ago, citing improved analytical tools, a reassessed strategy, and greater use of scenarios and sensitivity analysis to understand transmission to indirect and second-round effects.

Beyond monetary policy, he renewed his call for deeper euro-area integration, saying completion of banking union, a genuine Savings and Investments Union, more joint European debt, and a European safe asset would reduce fragmentation and strengthen the transmission of monetary policy.

“The issuance of more joint European debt, to pursue well-defined, high-priority common European purposes, such as enhancing defense, green energy, and strategic investment, would send an unambiguous signal that Europe is moving toward greater integration and shared responsibility,” he said.