By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Yannis Stournaras said on Monday that a significant but temporary overshoot of the ECB’s inflation target would warrant a cautious move toward tighter monetary policy, while warning that the Middle East conflict had intensified stagflation risks.
Stournaras, who heads the Bank of Greece, told a committee of the Hellenic Parliament that risks to the global and European economies had increased because of protectionism, geopolitical tensions and supply-chain disruption.
The closure of the Strait of Hormuz had driven oil and gas prices sharply higher, with possible spillovers to wages and other prices, he said.
Such developments raised the risk of stagflationary pressure, especially in energy-importing economies such as those in Europe, Stournaras said.
The impact on the economy and on households and firms would depend largely on how long the Strait of Hormuz remained closed and how intense the conflict became, he said.
“This is an extremely delicate balance for monetary policy: on the one hand, it is necessary to ensure that inflation returns to the 2% medium-term objective, while on the other hand, it is necessary to avoid an overly restrictive monetary stance that could further burden economic activity and investment,” Stournaras said.
“In the event of a significant but temporary overshoot of the inflation target, the response should be balanced: a cautious adjustment of monetary policy in a more restrictive direction is capable of limiting the intensity of second-round effects, without disproportionately damaging economic activity,” he continued.
Uncertainty was also pushing up government bond yields and increasing financial-market volatility, Stournaras said.
The risk of a sharp correction in global financial-asset prices remained high, he said.
On Greece, Stournaras said the economy had grown by 2.1% in 2025, the same rate as in 2024 and above the Eurozone average of 1.4%.
Growth was supported mainly by investment and private consumption, with a positive contribution from the external sector, he said.
Foreign direct investment reached a historically high level, reflecting a better investment climate and international confidence in Greece, Stournaras said.
Inflation declined only marginally, to 2.9% in 2025 from 3.0% in 2024, and remained well above the Eurozone average of 2.1%, he said.
The Greek outlook remained favorable, but the latest rise in geopolitical uncertainty was expected to slow momentum this year, Stournaras said.
Under the Bank of Greece’s baseline scenario, which corresponded to the ECB’s March baseline, Greek GDP was expected to grow by 1.9% in 2026, while inflation was seen at 3.1%, he said.
Risks to the growth forecast were mainly to the downside, while inflation risks were tilted upward and mainly linked to the war in the Middle East, Stournaras said.
Greece was nevertheless better able to withstand external shocks than in the past because of stronger fiscal and financial fundamentals, reforms and experience gained from successive crises, he said.
Greek banks also remained in better condition, Stournaras said. Profitability and asset quality improved further in 2025, capital adequacy stayed satisfactory and liquidity remained high, above the EU average, he said.
The stock of non-performing loans fell to €5.7 billion in December 2025, down 5.2% from a year earlier, he said.
The non-performing loan ratio declined to 3.3% from 3.8%, its lowest level since Greece joined the euro area and much closer to the average of major EU banks, Stournaras said.
Greek banking groups recorded after-tax profits of €4.7 billion in 2025, up from €4.2 billion in 2024, he said.
Return on assets was 1.3%, while return on equity was 11.8%, he said.
The Common Equity Tier 1 ratio fell to 15.3% in December 2025 from 16.0% a year earlier, while the total capital ratio was broadly stable at 19.7%, Stournaras said.
Although the banking-sector outlook remained positive, a prolonged Middle East conflict could damage firms and households, raise production and transport costs, squeeze margins and delay business decisions, he said.
Such a scenario could hurt banks’ loan portfolios and credit-growth targets, while also increasing cybersecurity risks and the chance of sharp global asset repricing, Stournaras said.
Central banks also had to adapt to technological change, including crypto-assets, stablecoins, artificial intelligence and new payment infrastructure, Stournaras said.
The digital euro, links between TARGET services and distributed ledger technology, and greater cooperation between European and non-European payment systems would help ensure that central-bank money remained central to the Eurozone financial system, he said.
Recent international developments created an opportunity for the euro, for Europe and for Greece, Stournaras said.
For Europe, this required deeper integration through the banking union and the savings and investment union, he said.
Financial integration would strengthen financial stability, investment, productivity, competitiveness, resilience and strategic autonomy, Stournaras said.
For Greece, the priority was to turn macroeconomic stability into stronger productivity, more productive investment and faster real convergence with Europe, he said.