Bank of Greece Governor interview to Politico and Johanna Treeck
25/02/2025 - Articles & Interviews
“Not yet time to discuss pausing rate cuts”
The European Central Bank should continue to ease policy steadily until its key interest rate hits two percent, given the mounting risks to growth and waning price pressures, Greek central bank chief Yannis Stournaras said in an interview.
“I don’t think that our next meeting is the right moment to discuss pausing,” Stournaras told POLITICO in Athens. “It is too early for that.”
His comments amount to a clear disagreement with board member Isabel Schnabel, who last week said the ECB’s Governing Council should start to debate whether to “pause or halt” rate cuts when it next meets on March 6. The ECB has cut its key deposit rate five times since June, bringing it down from a record-high 4 percent to 2.75 percent today. Regarded as the most influential “hawk” among ECB policymakers, Schnabel argued it’s no longer clear that rates are still a drag on economic activity.
Stournaras disagreed vigorously.
“We are definitely still in restrictive territory,” he said, noting that this has been the ECB’s official position. Moreover, it is backed by widespread expectations that growth will stay weak and that inflation will fall back to target this year. “If the situation continues like that, we should definitely bring interest rates down further,” he said.
Even so, Stournaras — habitually a staunch policy “dove” — held back from endorsing the latest forecast in a Bloomberg survey of analysts, where a slim majority predicted a rate cut in March 2026 in addition to 25-basis point decreases at each of the next three meetings.
“Whatever we say now about 2026 is going to be very premature,” he said, but “given the information we currently have, I expect that interest rates will reach 2 percent by the autumn of this year and that this is likely to be the terminal rate.”
The ECB is unlikely to have a clear view by March 6 of how the new U.S. administration’s policies, specifically regarding trade tariffs, will affect the eurozone economy, Stournaras said. As such, he doesn’t expect a dramatic revision of the ECB’s growth and inflation forecasts.
However, he warned, “we have seen more headwinds from across the Atlantic, further increasing uncertainty” and negatively skewing the risks around the growth outlook.
Transatlantic challenges
POLITICO caught up with Stournaras in a week when Europe was shaken by a series of announcements from President Donald Trump and other senior U.S. officials that questioned the very future of European democracy, with Washington pursuing a rapprochement with Russia at the expense of Ukraine and the rest of the continent.
Over lunch in the Bank of Greece’s Banquet Hall with a view of the Acropolis — the symbol of ancient Greek democracy and of Western civilization — Stournaras acknowledged the scale of the challenges created by the sudden shift in U.S. policy, but nonetheless tried to look for a silver lining.
He argued that if Trump manages to broker a peace deal in Ukraine, cheaper food and energy prices would quickly bring down inflation and boost growth prospects down the line. “Irrespective of the details of a peace deal — leaving politics aside — peace will be an absolute positive upside for the economy,” he said.
He also stressed that the turn of events “is an opportunity for Europe to act and speak for itself,” and is a wakeup call that should be used to boost investment and competitiveness.
But Washington’s sudden decision to distance itself from its democratic allies in Europe could have indirect consequences for the ECB, by forcing Europe to fundamentally rethink how it pays for its security.
Those countries that have the room to raise spending at national level should do so, Stournaras said. But with many capitals already hitting the limits of what they can borrow, he argued, the EU may have to repeat its pandemic approach and borrow in its own name to rebuild defense capabilities that have atrophied since the end of the Cold War.
“We must spend more but we must also spend more wisely,” he said, noting that this implies both enhancing Europe’s defense industry and devising a common defense procurement policy. Such initiatives would be consistent with the vision laid out in former ECB President Mario Draghi’s broad-brush review of the EU’s challenges last year, but — as Stournaras conceded — would have to overcome stiff resistance from the EU’s largest members.
“Are we prepared to discuss and agree these issues? In particular, are Germany and France, which are usually the initiators of such discussions, willing to agree on such an agenda?”
Who will pay?
As with all of the challenges facing the EU, the question is — who will pay? Stournaras acknowledged that the ECB may face pressure to ‘do its bit’ to support the EU’s broader policy goals. The central bank is bound by the EU treaty to do so, as long as it doesn’t compromise its primary goal of keeping inflation down.
Stournaras said the best contribution the ECB can make is still to safeguard price stability and foster an environment favorable to sustainable growth. But he also signaled openness to considering more targeted support for the defense industry, should EU leaders make more substantial spending a joint goal.
The ECB has already used the leeway of its ‘secondary mandate’ to expand its involvement in climate change policy substantially, skewing its purchases of corporate bonds in favor of greener companies and projects, and coming down hard on banks that don’t have a full view of the way climate change could hurt them, for example through extreme weather events.
“For the green transition we have a mandate, because it is a declared policy objective of the EU. Do we have a common policy goal to boost defense spending in the European Union? We do not know yet,” said Stournaras.
“If there is going to be a common objective of the EU to boost defense spending, we can discuss what the ECB can do to support that goal,” he said, stressing that this is his personal point of view. “According to the Treaty, we should assist EU policies, it is part of our mandate.”
As he put it in a speech to EU ambassadors in Athens earlier this month: “We cannot thrive in an environment where security is fragile or compromised. Reinforcing the EU’s civilian and military preparedness must be a priority.”