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2026-05-25 08:27:49
[EU Warns of Stagflation Pressures, Lagarde: Excessive Fiscal Easing Will Trigger Interest Rate Hikes] (1) EU officials said on Friday that the European economy is facing stagflation due to soaring energy prices caused by the war with Iran, but governments need to be wary that large-scale fiscal support may trigger a fiscal crisis or prompt the European Central Bank to raise interest rates. (2) The European Commission predicted on Thursday that the Eurozone economy will grow at 0.9% in 2026 from 1.3% in 2025, and the inflation rate will rise from 1.9% to 3.0%, far exceeding the European Central Bank’s target of 2.0%. Eurozone finance ministers’ meeting chairman Pierrakakis said that although there are stagflation pressures, Europe is resilient. (3) Investors are worried that the war with Iran will trigger a sustained inflationary shock, and government bond yields have risen to multi-decade highs, which may seriously weaken the spending power of governments, businesses and households. (4) European Central Bank President Christine Lagarde told finance ministers that if fiscal policy is excessively loosened to buffer the energy price shock, the European Central Bank will respond by raising interest rates. She emphasized that fiscal policy should be “temporary, targeted and specific”, otherwise it will force a change in the monetary policy stance. Pierrakakis stated that finance ministers have grasped this message, and that fiscal and monetary policies should be coordinated.
