By Marta Vilar and Laura Contemori – MADRID/ROME (Econostream) – European Central Bank Vice President Luis de Guindos said on Wednesday that the economic slowdown caused by the Middle East shock could partly offset inflationary pressures, though the overall impact would still be inflationary.
Speaking at a media briefing on the ECB’s Financial Stability Review 2026, de Guindos said that the current situation amounted to a global supply shock whose effects on consumption and demand “could temper a bit inflationary pressures.”
However, he added that “the net outcome will be lower growth and simultaneously, higher inflation.”
De Guindos said the global supply shock was already weighing on aggregate demand. “If you look at leading indicators, for instance, sentiment indicators or services PMIs, it becomes obvious that there is a deterioration there,” he said.
He pointed to second-round effects and inflation expectations as key factors for determining the ECB’s near-term monetary policy decisions.
Asked about the recent bond market sell-off, de Guindos said market moves had so far been orderly and spreads remained contained, though some fiscal issues still “need careful monitoring.”
De Guindos said Japan had been an important investor in European bonds, and that the Bank of Japan’s shift in monetary policy to address inflationary pressure had pushed Japanese government bond yields higher.
That had made domestic investments more attractive for Japanese investors, he said. So far, however, there had been no significant outflows or abrupt redemptions by Japanese investors, he said, adding that “everything is going quite smooth.”
On bank capital requirements, de Guindos said the ECB’s analysis showed that such requirements “do not limit at all” European banks’ lending to the real economy.
Reducing capital requirements “could be a mistake,” he said, arguing that it would not generate more lending and would instead weaken the solvency of European banks.
Asked about government intervention in banking mergers, de Guindos said political or nationalistic interference in domestic or cross-border bank transactions undermined the credibility of the Capital Markets Union and the free flow of capital and liquidity in the Eurozone.
This applied to all countries, he said, adding that “we cannot be selective.”
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