By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Yannis Stournaras on Monday said that a prolonged war in the Middle East would produce stagflationary effects for the euro area and could alter monetary-policy decisions if the shock risked feeding into broader inflation.

Stournaras, who heads the Bank of Greece, told an audience at the National Bank of Romania that “[t]he war, if sustained, is bound to produce stagflationary effects, that is higher inflation and lower growth.”

“In this case, our ECB baseline scenario will not be valid any longer,” he said. “The same will apply to national economy scenarios, including Greece’s.”

As the assumptions of the baseline worsened, particularly on energy prices, “inflation will be higher and growth will be lower compared to the baseline,” he said. “In such a case, monetary policy decisions will also be affected accordingly, to prevent second-round inflationary effects.”

At the same time, Stournaras said Greece remained on course for continued growth if the conflict did not last beyond the next few weeks and energy prices began to ease. Under that scenario, he said, Greek real GDP growth in 2026 was expected at 1.9%, down only marginally from 2.1% in 2025 and still above the euro-area average.

Much of the speech focused on lessons from Greece’s debt crisis, with Stournaras arguing that fiscal discipline, structural reform, banking-sector repair, and timely crisis management had been essential to restoring credibility and stability after the collapse.

He said Greece’s experience showed that fiscal and external imbalances had to be addressed before they became unsustainable and that fiscal policy had to remain consistent with monetary policy. The Greek crisis, he said, also demonstrated the importance of reform sequencing, early handling of non-performing loans, and stronger crisis-management tools at euro-area level.

Turning to the euro area more broadly, Stournaras said recent shocks had strengthened the case for a more coherent European strategy, including deeper market integration, stronger common institutions, and greater use of joint borrowing.

“Our objective should be to issue joint debt to pursue well-defined common European purposes of high importance, such as enhancing defense, green energy, and strategic investment,” he said.

A common European safe asset, he added, “can be a transformative step for market integration, financial stability and the international role of the euro,” while stressing that common borrowing could not become a substitute for sound national fiscal frameworks.