MEPs ask the ECB to assess the impact of global conflicts on price stability

This article is brought to you in association with the European Parliament.

• MEPs remain worried about persistently high inflation and its effect on lower-income groups 
• ECB should draw up a “Geopolitics plan” to assess impact of conflicts on price stability 
• ECB should not decide on its own when and how to introduce a digital euro 

Plenary adopted recommendations to the European Central Bank on Tuesday, following a debate on its priorities and activities with President Christine Lagarde on Monday.

With 378 votes in favour, 233 against and 26 abstentions, MEPs say they want the ECB to do more to stem inflation, the worst effects of which are felt by the most vulnerable in society, and to ensure that any roll out of a digital euro takes citizen concerns on board. For the first time, Parliament specifically requests the ECB to assess how war and conflict can affect price stability.

Inflation concerns

MEPs are uneasy about the “historically and persistently” high levels of inflation, arguing price increases hit those with lower incomes the hardest. They note the ECB was wrong to believe inflation would only be transitory and economic forecasting models need to be improved to allow for better policymaking. Parliament decries the “significant subsidy” to banks arising as an indirect result of ECB policies which led to large interest payments on bank deposits at the ECB, and asks for measures to mitigate this issue.

Deployment of digital euro

MEPs say public trust is necessary for a successful rollout of the digital euro and want the ECB to demonstrate its benefits before legislators, rather than the ECB governing council, take the decision on its introduction. They insist that a digital euro must co-exist with physical cash, which “should remain widely available at all times”. Financial stability concerns and potential changes in the structure of the financial sector resulting from the introduction of a digital euro must also be taken into account by the ECB, MEPs say.

Call for a new “geopolitics plan”

For the first time, MEPs ask the ECB to draft a Geopolitics plan 2025-2030 to understand better the implications of war and conflict on price stability.

Parliament also wants the ECB to assess how climate change affects its ability to maintain price stability. The institution should use the available tools to ensure banks take financial and external risks, including climate and geopolitical risks, seriously, the resolution says.

MEPs insist that price stability remains the ECB’s primary goal and warn that over-reaching on secondary objectives “touches on the independence of the ECB”.

Quote of the rapporteur, Anouk van Brug (Renew, NL)

“The European Central Bank’s core mission is clear: ensuring stable prices. But for too long, the ECB assumed a Europe free from conflict was a given. As a result, it failed to foresee risks like Russia’s invasion of Ukraine and acted too late. We cannot afford to be caught off guard again.

“It is time for the ECB to anticipate conflicts and their economic impact. By systematically incorporating geopolitical risks into its economic models, the ECB should be able to respond better to future inflation shocks and protect our purchasing power. The ECB must not only respond to crises but actively anticipate them.”

Debate with Christine Lagarde

During the plenary debate on Monday, MEPs clashed with each other on the issue of how market neutral ECB policy should be and the extent to which price stability should determine the ECB’s actions. A number of MEPs also argued the ECB would focus more on the needs of ordinary people, while others said that in today’s volatile world the ECB needed to be better prepared to address geopolitical shocks.