By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Yannis Stournaras on Friday said that renewed hostilities between the U.S. and Iran showed the uncertainty surrounding energy prices and inflation forecasts, and therefore the challenges facing monetary policy.

In a speech at the 30th Annual Economist Government Roundtable, Stournaras, who heads the Bank of Greece, said that the agreement between the U.S. and Iran had led to an unexpected reduction in energy prices close to levels prevailing before the war.

“These developments, if sustained, could lead to higher growth and lower inflation compared to previous forecasts”, he said.

Eurozone annual inflation fell unexpectedly to 2.8% in June from 3.2% in May, he said.

However, hostilities between the U.S. and Iran had resumed two days earlier and led to renewed pressure on oil prices, Stournaras said.

“No one can actually predict what will happen next”, he said.

The developments showed how “precarious and volatile” the situation in the Middle East was, and therefore how uncertain the outlook for energy prices remained, he said.

“It also shows the uncertainty surrounding inflation forecasts and therefore, the challenges that monetary policy has to face”, he said.

Turning to Greece, Stournaras said the country’s banking sector had undergone a strong turnaround and today “bears no resemblance to that of the past decade.”

The average capital adequacy ratio of Greek banks stood at about 20% in March, while the average non-performing loan ratio had fallen to 3.4%, close to the EU average, he said.

Greek banks were recording double-digit returns on equity, all significant banks had investment-grade status and liquidity was ample, with the liquidity coverage ratio at around 190%, well above the required minimum of 100%, he said.

“It is clear that the banking sector today can fulfill – and it does fulfill – its intermediation role in the economy”, he said.

Stournaras said Greece had the highest total allocation under the Recovery and Resilience Facility (RRF) as a share of national GDP in the EU, making the facility a key driver of the country’s growth momentum.

By the end of May, contracted RRF loans had reached €13.2 billion, while Greece had fulfilled more than 200 milestones and targets, he said.

With a disbursement rate of around 68.5%, Greece ranked among the leading EU beneficiaries, he said.

“The critical question, however, is what happens after the RRF”, Stournaras said.

The facility should not be viewed as “a temporary demand stimulus”, but as a bridge toward a more productive, innovative and resilient economy, he said.

Stournaras said Greece should experience “a smooth transition rather than an investment cliff” after the RRF, provided remaining funds were fully absorbed and reforms that attract and leverage private capital were maintained.

RRF-financed private projects had multi-year implementation horizons, loan disbursements to final beneficiaries would continue until 2029, and grant-funded projects already under way would also support activity beyond 2026, he said.

Resources from cohesion policy, the EU’s next Multiannual Financial Framework, Greece’s Public Investment Program, the European Investment Bank and private investment would increasingly complement the RRF, he said.

Stournaras said the financing challenge was not uniquely Greek, given large investment needs in defense, energy security, the green transition and digital technologies.

“Europe cannot finance these priorities through national budgets alone”, he said.

Europe needed to mobilize private savings, make faster progress with the Savings and Investments Union, deepen capital markets and complete the Banking Union, including a common deposit insurance scheme, he said.

At the same time, “genuinely European public goods” could require a targeted common financing capacity, governed by clear rules and credible funding arrangements, he said.

Greece was now better prepared than in the past, with restored fiscal credibility, public debt on a firm downward path, a sound banking sector and normalized access to international capital markets, Stournaras said.

However, bank lending alone would not be sufficient, he said.

Greece had to broaden its financing ecosystem through corporate bond and equity markets, institutional investors, venture capital and public-private partnerships, while strengthening financial literacy and encouraging long-term household saving, he said.

The objective was to convert temporary European support into permanent domestic capabilities, including stronger institutions, more productive firms, better skills, greater innovation and higher export capacity, Stournaras said.