ECB president Lagarde promotes ambitious European agenda
The ECB policy meeting on 5 February brought little news in terms of monetary policy. In contrast, there was news regarding the ECB's view on EU structural developments, which will be discussed in more detail in the second part of this Economic Brief.
As expected, the ECB kept its policy rate, the deposit rate, unchanged at 2% in a unanimous decision. This also kept the refinancing rate at 2.15% and the marginal lending rate at 2.40%.
The ECB still expects that euro area inflation will stabilise around 2% over the medium term, in line with its target. The fact that euro area inflation may temporarily stay below that 2% target in 2026 does not come as a surprise, but has been part of the ECB's baseline scenario since September 2025. Low inflation is expected to be caused by temporary negative year-on-year changes in energy prices.
According to the central bank, the stabilisation of inflation over the medium term occurs against a backdrop of resilient economic growth, mainly driven by domestic demand. In particular, growth in investment and public spending in infrastructure and defence play the role of growth engine. To a more limited extent, private consumption growth is also contributing to this, reflecting the low unemployment rate and falling savings rate.
ECB president Lagarde also reiterated the usual "disclaimers": future ECB policy is reconsidered meeting-by-meeting on the basis of data available at that time (the data dependency) and the ECB does not pre-commit to a specific future interest rate path. The whole policy toolbox is, as always, available if needed.
Euro exchange rate does not worry ECB for now
Besides these unsurprising statements, there were also some new elements in Lagarde's press conference. She confirmed that the euro exchange rate is not a policy objective as such for the ECB, but that the central bank is taking into account any impact on expected inflation and economic growth. Specifically, Lagarde confirmed that the euro exchange rate was on the agenda of the policy meeting. The governing council concluded that the euro's appreciation against the dollar was not a very recent phenomenon, but started as early as March 2025. Recently, the euro exchange rate moved in a broadly sideways band, be it with some volatility. The impact of a currency appreciation on inflation depends not only on the size of the appreciation, but also on the pace at which it occurs. Consequently, the ECB governing council concluded that its baseline scenario already adequately takes into account effects of euro exchange rate movement. Hence, an additional precautionary rate cut was not appropriate for now.
'Checklist' for European integration
The most interesting news from the press conference was not directly related to monetary policy, but to what the ECB believes should be on the agenda for a further European growth strategy. Next Thursday (12 February), European leaders will meet in Alden Biesen for an informal 'retreat'. The authors of previous strategy reports, Draghi and Letta, will also be there. Lagarde indicated at the press conference that the ECB has already drawn up a 'checklist' of five points that it will provide in advance to the participants of that summit. The ECB's intention is for this exceptional EU summit to make quick work of boosting Europe's growth potential.
That 'checklist' includes five points: the implementation of the planned 'Savings and Investment Union', the rapid adoption of the required legislative framework for the introduction of the digital euro, the deeper integration of the European single market, investment in European strategic autonomy and a general simplification of legislation and bureaucracy.
During the press conference, Lagarde also elaborated on the international role of the euro. She confirmed that the ECB feels strongly about this topic. According to her, conditions for the euro to play such a role are:
- The already mentioned deepening of the functioning of the European single market.
- A reliable economic-financial environment for international investors, who can rely on the rule of law (presumably also alluding to the recent Euroclear case).
- A strong position of the European economy in terms of critical infrastructure and defence. Further steps in that direction need to be taken.
- The ability to conclude new trade agreements, such as the recent agreement with Mercosur and the trade agreement with India.
- An international currency status also requires providing trading partners with the necessary euro liquidity. Lagarde said that in that context, the ECB was currently reviewing the functioning of its repurchase agreements to make them more attractive to other central banks. An ECB communication on this would follow shortly.
In favour of common Eurobonds
The most notable statement Lagarde made came in response to the question of whether a more prominent international role for the euro would not also require the issuance of common European bonds on a meaningful scale, for instance for common defence spending. Those bonds would then form a permanent building block of the European financial market as safe assets. The answer was as short as it was clear: "That is definitely part of our checklist". We look forward to seeing whether the EU summit next week is prepared to take a further step in that direction.