The Comfort Trap: Why satisfaction must not make others complacent

The decision to hold interest rates last Thursday reaffirmed our comfortable position at the end of a turbulent year.

But let me be clear: we remain flexible and ready to step in should future developments warrant fresh action.

Looking back, this was a tumultuous year which we conclude with a justifiable sense of satisfaction about where we stand today.

Our monetary policy has served as the anchor it was designed to be, holding firm against the tides of volatility, delivering price stability as our mandate dictates.

The inflation outlook is stabilising and is projected to remain close to our target by the end of the projection horizon.

The economy is resilient and holding up surprisingly well. This resilience is encouraging.

The risks to the outlook may have narrowed and become more balanced relative to the recent past.

But the current goldilocks period is rather fragile.

The coming year is likely to bring new challenges that households, firms and indeed our policy may have to respond to.

Agility remains crucial.

Resilience also does not mean dynamism. And satisfaction must not turn into complacency.

While our monetary house is in order, the broader economic foundations are showing cracks that interest rates alone cannot fix.

I find euro area’s long-term growth prospects rather subdued.

Frankly, it is rather alarming.

This is where the responsibility widens. We have successfully managed the cycle; now, Europe must address the structure.

Monetary policy cannot solve structural problems.

It is an urgent necessity to deploy decisive policies at both the national and EU levels.

We need a concerted drive to improve our competitiveness and lift potential growth.

We need structural reforms that foster innovation. Reforms that integrate our capital markets. Reforms that reduce the bureaucratic weight on our businesses.

For the euro area to thrive, not just survive, we need policymakers across the continent to treat the issue of potential growth with the same focus we have been applying to inflation.

Structural reforms would strengthen confidence and boost consumption and investment in a way that rate cuts simply cannot.