The European Central Bank (ECB) marks its twenty-fifth year, a milestone that stirs mixed feelings about its long-standing role and its ability to weather shifting economic winds. The eurozone’s monetary and banking supervisor has stood as a steadying force in a period filled with global inflation shocks, a sequence of crises, and policy debates. In an opinion piece published by Grupo Prensa Ibérica, Christine Lagarde, the ECB president, reflected on the institution’s mission to deliver reliable stability and to protect the euro area from uncertainty, underscoring the bank’s enduring responsibility to the public and to the economy. (Source: ECB leadership comments)
Like other major central banks, the ECB has navigated a changing landscape as the inflationary cycle began to take hold after economies reopened. Rising energy prices post-pandemic and the economic disruptions from Russia’s invasion of Ukraine contributed to a shift in policy priorities. For years after the Great Financial Crisis, the ECB’s primary focus was deflation risk, and it supported a range of measures to avert a deep downturn. The COVID-19 pandemic then demanded unprecedented actions to keep financial conditions functional and to prevent a harsher recession. (Source: ECB policy history)
Initially, inflation rose sharply in the summer of 2021. Policies once considered temporary were reassessed, and unlike the Federal Reserve in the United States or the Bank of England, the ECB faced the need to respond to evolving price dynamics in a context of global disruptions. The rapid rise in energy and food costs, amplified by the war in Ukraine, caused the ECB to reframe its strategy. By December 2021, it announced the end of large-scale net purchases and signaled the first rate hike in about eleven years the following year. Six additional rate increases have followed as part of a path toward restoring price stability. (Source: ECB communications)
End of walks
The ECB’s policy stance has moved to a level of higher interest rates, with the deposit facility rate reaching 3.25 percent and the main refi rate at 3.75 percent (levels last seen around the global financial crisis). This tightening, driven by higher borrowing costs, has contributed to cooling inflation from its peak and to a more cautious assessment of price pressures in the euro area. For April, consumer price growth remained elevated at about 7 percent, while underlying inflation—excluding more volatile items like energy and food—stayed notably high at around 5.6 percent. The central bank frequently notes that inflation remains stickier than hoped, underscoring the challenge of achieving sustained price stability. (Source: ECB data releases)
Recent weeks have focused on whether further rate increases are warranted to ensure inflation moves toward the 2 percent target. Each increment influences financial conditions, shaping demand, investment, and overall economic activity. Market expectations point to a possible 0.25 percentage point rise in June and July, which would bring the main rate to 4.25 percent and the deposit facility to 3.75 percent, aligning the euro area with levels seen in the United States. Since mid-April, the ECB has emphasized a medium-term 2 percent CPI goal, weighing the timing and magnitude of any further moves against the need to avoid stalling economic activity. (Source: ECB projections)
The path forward may include only a couple more increases. The central bank has kept its options open, avoiding explicit commitments that would constrain future actions. The inflationary episode has exposed a tension inside the ECB between flexibility in its mandate and a strict pursuit of price stability. On one side are proponents who advocate a broader, more adaptive interpretation of the mandate; on the other are those who push for a firmer stance. Among the voices in favor of a cautious approach is Governor Pablo Hernández de Cos of the Bank of Spain, who has signaled openness to small, incremental gains, while hawks in the council have hinted at a more aggressive trajectory. (Source: ECB Council discussions)
Lagarde’s role
Lagarde has positioned herself amid these competing impulses with a measured voice. When she took office, she warned that she was not simply a hawk or a dove, but someone who values prudent judgment and strategic balance. Her leadership follows the footsteps of Mario Draghi, whose decisive actions during the sovereign debt crisis of 2012—famously declaring that the ECB would do whatever it takes to protect the euro—defined the bank’s willingness to act decisively in defense of the currency union. That legacy continues to shape internal debates and public communication. (Source: ECB leadership remarks)
Lagarde has consistently acknowledged the costs of monetary tightening on households as rates rise, recognizing that higher borrowing costs can dampen demand and reduce disposable income. She has emphasized that inflation erodes money’s value and underscored the need to shield the most vulnerable groups from adverse effects while sustaining a path toward price stability. These remarks highlight the macroeconomic balancing act that defines the ECB’s current mandate. (Source: Lagarde commentary)
A broader issue for the ECB remains the completion of the Banking Union and the broader integration of European financial markets. The episodes involving the collapse of Silicon Valley Bank in the United States and Credit Suisse have compelled discussions about reinforcing the euro area’s safety nets, including stronger deposit protection and a deeper capital markets framework. The euro is portrayed as more than a currency; it is a symbol of European integration designed to protect and benefit citizens across member states, a view reiterated by Lagarde in her public statements. (Source: EU financial integration discourse)