By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Yannis Stournaras said Thursday that the euro area economy had remained resilient despite the energy shock caused by the Middle East conflict, supported by a strong labor market, external demand and increased defense and infrastructure spending.

The Bank of Greece governor, speaking at the annual reunion of Scope Ratings in Athens, said real euro area GDP had expanded 1.2% year on year in the second quarter while employment had continued to grow.

“A resilient labour market, stronger external demand, due to the ongoing global AI boom, and higher expenditure on defence and infrastructure have helped the European economy absorb part of the shock,” Stournaras said.

He also stressed the importance of central bank independence in anchoring inflation expectations and limiting the effects of fiscal concerns on longer-term borrowing costs.

“In the euro area, we benefit from a statutory independent central bank, whose credibility anchors inflation expectations and helps insulate long-term yields from concerns over fiscal dominance,” Stournaras said.

With central-bank independence being questioned in some advanced economies outside Europe, this created “an opportunity for Europe to increase its role as an international safe-asset provider,” he said.

Turning to Greece, Stournaras said its economy had also demonstrated “remarkable resilience,” with GDP growing 1.9% year on year in the second quarter, substantially faster than the euro area average.

That performance reflected stronger economic fundamentals built through fiscal consolidation, the repair of the banking system, improvements in the business environment and sustained reform efforts, he said.

Stournaras said Greece provided “a notable example of the benefits of fiscal prudence,” noting that Greek sovereign spreads had widened only modestly since the start of the year despite significant volatility in global bond markets.

Bank of Greece research suggested Greek sovereign debt was now being priced by markets closer to A-rated sovereigns than to BBB-rated ones, he said.

“This should not be interpreted as a prediction of future rating decisions,” Stournaras cautioned. “It is, however, a useful indication of how much market perceptions of Greek sovereign risk have changed.”

He said further progress toward a single-A sovereign rating before 2030 would require continued improvements in institutional quality, including reforms to public administration and the judicial system.

Favorable Greek debt dynamics should also continue over the medium term, Stournaras said, with nominal GDP growth expected to exceed the implicit interest rate on the country’s debt while fiscal risks remained contained.