By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Yannis Stournaras said in an interview that appeared Saturday on Greek website Liberal.gr that a significant but temporary inflation overshoot would call for a measured tightening of monetary policy in the near term, while warning that the ECB could not react mechanically to higher energy prices.

Stournaras, who heads the Bank of Greece, said the Middle East energy shock raised a delicate policy problem because the ECB had to prevent inflation from becoming more persistent without imposing unnecessary damage on activity and investment.

“[T]he reaction of monetary policy cannot be mechanistic,” he said.

The policy response would depend on how long and intense the shock became, whether it spread into wages and broader prices, and whether inflation expectations stayed anchored, Stournaras said.

The Eurozone had entered the current turbulence with inflation close to target and the economy still relatively resilient, he said.

So far, the data did not show strong evidence of a broad pass-through of higher energy prices into wage-setting, prices of other goods and services or longer-term inflation expectations, which remained close to 2%, he said.

However, damage to energy infrastructure in the Persian Gulf could keep inflation pressure higher over the medium term, Stournaras said.

Supply-chain strains were also increasing, with longer delivery times and higher input costs, while sentiment indicators pointed to weaker growth, he said.

Households and companies were operating under unusually high uncertainty, and banks had become more cautious in lending to companies as risks increased, Stournaras said.

“This uncertainty is already reflected in financial conditions,” he said.

The duration and intensity of the energy shock, along with the way it filtered into the real economy, would determine the ECB’s reaction, Stournaras said.

“A significant but temporary excess over the inflation target would mean a measured adjustment of monetary policy in a more restrictive direction in the near future, in order to limit the intensity of second-round effects, without disproportionately affecting economic activity,” he said.

“In the Governing Council, we will continue to closely assess all available data and remain ready to set policy rates at levels consistent with maintaining price stability over the medium term,” he said.

Stournaras said stagflation and high global public debt were real risks that required careful assessment.

The Middle East crisis could raise energy, raw-material and transport costs, while high public debt limited governments’ room to respond to new shocks, he said.

A prolonged energy disruption would be especially difficult for economic policy because it would combine higher consumer prices with weaker growth, Stournaras said.

Compared with the 2022 energy crisis, the Eurozone was starting from a better inflation position, given that inflation had already moved close to the ECB’s target before the latest rise in energy prices, he said.

However, the new shock was hitting a more fragile environment, with weaker growth momentum, tighter financial conditions and reduced fiscal space in several economies, Stournaras said.

Global public debt was expected to reach 100% of global GDP in 2029, he said.

Defense, social protection, the green transition and strategic autonomy were all raising spending needs at a time when financing costs were higher than in the previous decade, limiting governments’ scope for broad fiscal support, he said.

Fiscal policy in response to the energy shock should therefore be temporary, targeted and compatible with debt sustainability, Stournaras said.

Broad support measures were expensive, often had limited effectiveness and could intensify inflation pressure, he said.

The right response was vigilance, including careful monetary policy, prudent fiscal management, strong institutions and reforms to strengthen productivity, energy resilience and confidence, he said.

Asked about Greece’s ability to withstand another prolonged energy crisis, Stournaras said the country was much better positioned than in the past, though no economy could be fully protected against major stagflationary shocks.

Greece had entered the current period from a stronger macroeconomic and fiscal position, helped by regained investment grade status, market access, a healthier banking system, lower public debt and high cash reserves, he said.

“The country currently has a greater capacity to absorb crises than in 2022 or even more so than in the previous decade,” he said.

Greece still faced vulnerabilities from imported energy dependence, inflation pressure and possible effects on consumption, production and tourism if the crisis persisted, Stournaras said.

Any Greek fiscal response should follow the same principles of being temporary, targeted and compatible with fiscal sustainability, he said.

Priority should go to vulnerable households and companies most exposed to energy costs, rather than broad-based measures, he said.

Longer-term resilience depended on faster investment in renewables, upgraded electricity grids, stronger cross-border energy links and better-functioning energy markets, Stournaras said.

European resources were also helping stabilize activity by supporting green investment and reducing the impact of external shocks, he said.

Because the energy disruption was common to Europe, no country could deal with it effectively alone if it lasted long enough, Stournaras said.

“A European response is needed,” he said.

Stournaras also said Greece had made substantial progress since the crisis years, with lower unemployment, stronger investment, restored market access and public debt on a declining path.

Political stability had played a decisive role by supporting policy consistency, investor confidence and the return to normal financing conditions, he said.

Greece was no longer merely stabilizing but undergoing economic transformation, Stournaras said.

The country still needed faster reform, better productivity, more investment, stronger competition and broader access to finance for smaller firms, he said.

Business lending had improved strongly, with financing to non-financial companies rising 13.8% in 2024, 11.3% in 2025 and 10.4% in March 2026, far above the respective Eurozone rates, Stournaras said.

Still, smaller companies remained more constrained than larger firms because they often carried higher credit risk, he said.