By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Yannis Stournaras on Tuesday said an escalation of war in the Middle East was set to weaken growth and raise inflation in Europe, warning of “significant risks” as long as the conflict continued.

Stournaras, who heads the Bank of Greece, told SKAI radio that his baseline scenario assumed the war would end soon, with Greek growth slowing to 1.9% this year from 2.1% in 2025, while in Europe “it will fall even more” and “inflation will rise.”

“So there are risks and they are downwards, downwards,” he said. “Significant risks, I must say. As long as this escalation continues.”

He also said Europe was especially exposed because it is “a net importer of energy,” calling energy “a very big issue because you see now how vulnerable Europe is” amid the crisis in the Middle East and rising energy prices.

Asked why Greek inflation remained above the European average, Stournaras said the main reason was “excess demand in the economy,” adding that “the output gap is positive, the demand is higher than the available supply.”

“The recipe is not to cut demand, it is to increase supply,” he said, pointing to investment, reforms, and stronger competitiveness as the appropriate response.

Stournaras also stressed that national responses to higher energy costs were constrained by European rules, saying, “We are not alone, we cannot do whatever we want,” given procedures governing state aid and energy policy in Europe.