The European Central Bank left interest rates unchanged for a third consecutive meeting, with inflation conveniently hovering around 2 per cent and the eurozone economy stubbornly refusing to recover.
The deposit rate remained unchanged at 2 per cent on Thursday, exactly as consensus had predicted, a triumph of predictability, if not excitement. Policymakers offered no clues about their next move, pledging instead to “remain data dependent,” the monetary equivalent of saying they’ll make it up as they go along.
“From a monetary policy point of view, we are in a good place,” declared ECB President Christine Lagarde, speaking in Florence, a location as symbolic as it is scenic. “Is it an ideal and sustainable situation? Florence, the Renaissance cradle of visionaries and revolutions, now hosts politicians who speak of progress amid frescoes celebrating action —a fitting stage for the theatre of hypocrisy and inertia that passes for modern politics.
Markets barely twitched. The euro held its earlier losses, while Germany’s two-year yield edged up three basis points to roughly 2 per cent. Swap markets suggest the ECB’s rate-cutting spree is now over, assuming, of course, that the data don’t misbehave. I have my doubts.
Officials have spent recent weeks hinting heavily that the eight cuts already delivered should suffice. Confidence rests on inflation settling neatly around the target and the eurozone’s apparent immunity to Donald Trump’s latest tariff tantrums.
The ECB’s stance stands in contrast to that of the US Federal Reserve, which, at the last FOMC meeting, cited a faltering jobs market. For once, Europe finds itself playing the adult in the room, though not necessarily by choice. The decision coincided with a flurry of economic data showing the eurozone economy grew faster than expected in the third quarter. France led the charge with its best performance since 2023, while Germany and Italy — perennial underachievers — managed only to avoid recession.
To be fair, the ECB takes comfort from the eurozone’s resilience and resists further cuts. However, this stance will become increasingly difficult to defend as the impact of higher US tariffs on the bloc becomes clearer next year.
Last week will bring fresh inflation data, expected to show a modest dip to 2.1 per cent. Lagarde noted that long-term inflation expectations remain “around 2 per cent,” which the ECB considers both a success and an excuse to do nothing.
She brushed off concerns about possible delays in implementing the new EU emissions-trading scheme, ETS2, due in 2027 — a policy the ECB itself predicts will add to inflation when it finally arrives. “The next projections will take this smoothing into account,” she said delicately, meaning, essentially, not our problem yet.
For now, the narrative remains soothing: inflation is close to target, growth is modestly positive, and policymakers are pleased with themselves. But not everyone at the ECB shares the serenity. Some fret over the stronger euro and fiscal laxity in Paris; others warn of food-price pressures and the murky fallout from renewed US-China trade skirmishes. A more robust debate is scheduled for December, when the ECB will unveil fresh forecasts extending to 2028, by which time, it hopes, the eurozone will still be intact and the target will still be “around 2 per cent.”
In other words, steady as she goes. For a continent addicted to crisis, such calm almost feels unnatural.