FRANKFURT — Europeans will feel the pain of the war on Iran in their wallets this year, even if things don’t get any worse from here on, the European Central Bank warned on Thursday. The ECB’s new forecasts show that inflation is set to rise to 2.6 percent this year—well above the 1.9 percent forecast as recently as December, while growth will slow as businesses and households have to divert more of their spending power to essentials such as energy. “The war in the Middle East has made the outlook significantly more uncertain, creating upside risks for inflation and downside risks for economic growth,” the ECB said, drawing on new quarterly forecasts for the eurozone outlook. The forecasts were published after its policy-making Governing Council left the Bank’s official interest rates unchanged, as expected. The renewed hit comes just as purchasing power was starting to recover from the last surge in prices caused by Russia’s invasion of Ukraine in 2022. That pushed headline inflation up to 10 percent within a year. On the upside, this forecast suggests that the ECB expects the problem to correct itself without it needing to raise interest rates aggressively. It sees inflation easing back towards the ECB’s 2 percent target within a couple of years, the time horizon that the ECB uses to guide its policy decisions. The economy is forecast to grow, albeit slightly less than previously expected: the Bank trimmed its forecast to 0.9 percent from 1.2 percent for this year, and to 1.3 percent from 1.4 percent for next year. Central banks are generally reluctant to respond to so-called supply shocks because their main policy tool — control over interest rates — only works with long and often uncertain time lags, while the geopolitical situation behind the supply shock can change at very short notice. However, they have to balance that against the risk of appearing complacent and letting expectations of high inflation become self-fulfilling, as constant price increases by retailers lead to more aggressive pay demands from workers. In its regular policy statement, the ECB stressed that it is “closely monitoring the situation” and will set monetary policy as appropriately. Investors have bet that this means raising the key deposit rate twice this year, to 2.5 percent. But policymakers around the globe have cautioned against rushing to such conclusions. “The thing I really want to emphasize is that nobody knows,” Federal Reserve Chair Jerome Powell told reporters following the Fed’s decision to leave rates unchanged on Wednesday. “It is too soon to know the scope and duration of the potential effects on the economy.”  ECB President Christine Lagarde is expected to echo that message at her press conference later on Thursday. However, the Bank did say that it had looked at the possible consequences of an extended disruption of global oil and gas supplies, and warned that this “would in the supply of oil and gas “would result in inflation being above, and growth being below, the baseline projections.” There is broad consensus among central bankers and private-sector economists that the longer the conflict lasts, the more likely it is to create so-called “stagflation” — a combination of economic stagnation and inflation. While the ECB, like other central banks around the world, was content to adopt a “wait-and-see” policy on Thursday, analysts don’t expect its patience to last very long. A clearer picture is expected to emerge as soon as next month. “If the current situation persists through to the April meeting, a hike becomes a distinct possibility,” according to ABN AMRO’s chief economist Nick Kounis.

BRUSSELS — Spain’s business sector isn’t sure Donald Trump will chicken out. While the country’s political class may be steadfast in its defiance against the U.S. and Israel’s war in Iran, its companies and regional leaders are scrambling to figure out what retaliation out of Washington would look like. The fear is that a transatlantic rift between Washington and Madrid, which opened after Prime Minister Pedro Sánchez refused to let U.S. military planes use jointly operated air bases on Spanish soil to attack Iran, could turn into a complete rupture. Earlier this week, the U.S. President and his Treasury Secretary Scott Bessent threatened to cut all trade ties with the EU’s fourth-largest economy in retaliation. It’s not supposed to be easy for the U.S. to bring economic pain to Spain. The EU functions as a barrier-free common market of 27 nations, a collective commercial entity that cannot be divided or fragmented with individual retaliation. But Spanish businesses aren’t taking any chances, given how vulnerable the country would be to a U.S. trade embargo. The U.S. is Spain’s leading supplier of fossil fuels. Over 15 percent of the oil Spain imported last year came from the U.S., which also provided a record 44 percent of the country’s liquefied natural gas imports last January alone. Cutting off the supply of either would be devastating amid surging energy prices from the war in the Gulf. Even though the U.S. accounts for less than 5 percent of Spain’s total global exports, suspending trade relations would have a serious impact on regions like the autonomous Basque Country, a major industrial player. “Around 8 percent of our exports go directly to the States,” Ander Caballero, the Basque government’s head of foreign affairs, told POLITICO during an interview in Brussels. “We need to see how any change in policy would be applied, but anything affecting the energy or automotive sectors, or involving machine tools, steel, and aluminum would be a source of concern.” Caballero noted that the region’s products were also part of larger value chains that involve large German, French, and British companies. “Even though the U.S. is only our fourth laregst trading partner, we could still be talking about a hit that could amount to €1 billion.” Basque Country President Imanol Pradales this week convened an emergency meeting of the region’s “Industrial Defense Group,” made up of government figures, chambers of commerce and key sectoral and business leaders, to coordinate contingency measures against the commercial turmoil stemming from the Middle Eastern conflict. The rapid-response task force was created one year ago with the mission of mitigating the regional impact of Trump’s tariff policies, which Pradales described as a “challenge unlike anything we’ve seen in decades.” This week marked the fourth emergency meeting of the group. “The Basque Country cannot control the global geopolitical landscape, but we can react quickly to protect our industry,” Pradales said. “The time it takes us to react will determine the magnitude of the impact.” The rush to prepare for the worst underscores Spaniards’ fear of the White House’s arsenal of economic weapons. So far, the most popular of these weapons has been trade tariffs. But Trump has also used sanctions to deprive his dissenters from using American credit cards and cut off countries like Iran from the world’s reserve currency. Scott Bessent has no qualms with weaponizing the U.S. dollar | Magnus Lejhall/EPA Bessent has no qualms with weaponizing the U.S. dollar, either. Earlier this year, he told POLITICO that sanctions and limits on access to the greenback enabled Washington to influence other countries’ policies “without firing bullets.” That’s of particular concern to banks, such as Spain’s largest lender, Santander, which last month agreed to acquire the U.S.’s Webster Financial Corporation, a second-tier bank. The $12.2 billion deal could catapult Santander into the top 10 American retail and commercial lenders. At the very least, a breakdown in commercial relations between Madrid and Washington could make it harder to secure necessary regulatory approvals. Santander Executive Chairman Ana Botín sought to calm shareholders on Wednesday, insisting that it was key to “look to the medium term.” While acknowledging that the current situation was “extraordinary,” she downplayed the clash, saying: “trade continues and is very strong.” “Spain and the U.S. have had an amazing relationship, forever, for centuries,” Botín told  Bloomberg TV, alluding to the Spanish crown’s financial support for George Washington in the American War of Independence, the 250th anniversary of which is being observed this year. “The long-term relationship is strong.” YET ANOTHER TACO? Of course, it’s entirely possible that Trump’s vow to cut ties with Spain will never materialize. According to market lore, whenever the risk of self-inflicted economic pain outweighs political rhetoric, “Trump always chickens out” — or TACO . None of the higher tariffs he threatened to impose on Sweden, Norway, Germany, Finland, France, the United Kingdom, and the Netherlands for their participation in military training exercises in Greenland has been implemented. Neither has the 200 percent tariff on French wine and champagne that Trump swore he’d impose on Paris after French President Macron declined to join the Board of Peace scheme to rebuild Gaza. And Madrid is still waiting to hear about the higher tariffs the U.S. president promised to use to punish Sánchez for his refusal to commit 5 percent of Spain’s GDP to military spending. Sánchez this week insisted that, no matter what Trump threatens, Spain will continue to oppose the war in Iran. José Manuel Corrales, a professor of economics and international relations at the European University in Madrid, said the Spanish prime minister’s stance is savvy because the U.S. president tends to back down when countries respond to Washington by remaining firm. “It’s worked out for Canada and México, and obviously for China,” he said. “And, politically, it’s definitely working out for Spain’s government, which is now being hailed for standing up to Trump and firmly saying no to this war.” Regardless of whether Washington cuts trade relations with Madrid, Spain’s economy is already being affected by the instability caused by the U.S. attack on Iran. Corrales said Spain’s booming economy — which grew by 2.8 percent in 2025, and is projected to expand by over 2 percent this year — could be undermined by surging inflation if the war lasts long. “The truth is that we may be facing a crisis with significant repercussions,” he said. “This latest war is already going to have consequences for the American economy, but the Trump administration is also going to have to pay for the damage it’s wrought on the global economy sooner or later.”

The Bank of Russia is suing the European Union for keeping its state assets frozen “for an indefinite period” to serve as collateral against a €90 billion loan to Ukraine. The lawsuit will test rare emergency powers that the European Commission used last year to keep Russian state assets across the bloc, worth some €210 billion, on ice through a qualified majority. The legal loophole nullified vetoes that Kremlin-friendly countries in the EU, such as Hungary, would otherwise have had. EU leaders agreed in mid-December to raise common debt without Hungary, Slovakia and Czechia to finance Kyiv’s defense against Russian forces. Ukraine will only have to pay back the loan once Moscow ends the conflict and pays war reparations. If the Kremlin refuses, EU leaders reserve the right to tap the cash value of the frozen assets to pay itself back. In a statement Tuesday, the Bank of Russia blasted the EU’s “unlawful actions against the Bank of Russia’s sovereign assets,” saying the regulation violates “the basic and inalienable rights to access justice” and the “principle of sovereign immunity of states and their central banks.” The central bank also argued the Council of the EU committed “serious violations” of its own procedures by adopting the measure by qualified majority rather than unanimity. The Commission plans to issue a statement in response to the lawsuit, which the central bank filed at the EU’s General Court in Luxembourg. Russia’s central bank filed a separate lawsuit in Moscow last year against Brussels-based financial depository Euroclear, where the bulk of its assets lie immobilized under EU sanctions after Moscow invaded Ukraine in 2022.

BRUSSELS — Ukraine’s cash-strapped government received a small reprieve in the early hours of Friday after the International Monetary Fund approved a new $8.1 billion loan to the war-torn country. The IMF will disburse some $1.5 billion from the loan straight away, as Kyiv’s coffers are set to empty in April after years of fighting against Russian invading forces. “It is very important for us that in the fifth year of a full-scale war, against the backdrop of systemic attacks on the energy sector, Ukraine has guaranteed international financial support from partners and a resource for the stable operation of the state,” Ukrainian Prime Minister Yulia Svyrydenko posted on Facebook after the IMF’s announcement. The international lender had initially demanded more assurances over Kyiv’s financial stability before approving the loan — this came when a majority of EU countries agreed late last year to raise €90 billion in joint debt to shore up Ukraine against Russia. But the IMF’s cash cushion is tiny. Kyiv’s budget shortfall is set to widen beyond $50 billion this year, putting pressure on the EU to overcome a dispute with Hungary that’s blocking crucial financial support. The EU’s planned €90 billion loan to Ukraine would help plug the gap. But Hungary is blocking the financing package amid accusations that Ukraine is deliberately slow-walking repairs to the damaged 4,000-kilometer Druzhba pipeline, which carries vital supplies of Russian oil to Hungary, on political grounds. Ukraine has dismissed the accusations. The European Commission has also downplayed the risk of an immediate energy crunch in Hungary, which has 90 days’ worth of oil supplies it can use. In the meantime, Brussels’ top brass is trying to solve the dispute without playing into an anti-EU political campaign that Hungary’s prime minister, Viktor Orbán, is pursuing ahead of a national election in April. The Hungarian leader has also weaponized anti-Ukraine sentiment ahead of the election, with his political party, Fidesz, trailing the opposition, Tisza, in the polls by a wide margin. A loss would see Orbán’s 16-year reign come to an end. GIVE AND TAKE Some diplomats in Brussels had feared Orbán’s veto could hold up the IMF loan. The world’s lender of last resort demanded greater assurances over Kyiv’s financial health before issuing a loan, after four years of war have more than doubled the country’s debt burden to 108.7 percent of economic output. That reassurance initially arrived in mid-December, when 24 EU leaders agreed to raise €90 billion in joint debt to help finance Ukraine’s defense against Russia. Kyiv will only have to repay the money once Moscow ends the war and pays war reparations — an unlikely scenario. If the Kremlin refuses, the EU could use the cash value of frozen Russian state assets across the bloc to pay itself back. None of that matters if Orbán refuses to withdraw his veto. Recent correspondence with European Council President António Costa, however, has suggested Orbán will drop his veto if the EU assesses the damage to the Druzhba pipeline. The Hungarian leader could also relent if Brussels approves Budapest’s application for a €16 billion defense loan, according to some diplomats. The Commission’s lawyers are studying the EU treaties to see whether a legal loophole could be used to nullify the Hungarian veto. That could take time — something Kyiv doesn’t have. “Ukraine and its people have weathered a long and devastating war for over four years with remarkable resilience,” the IMF’s managing director, Kristalina Georgieva, said in a statement. “Nevertheless, the war has taken a toll on economic and social conditions, with slowing growth and the outlook remaining subject to exceptionally high uncertainty.”

FRANKFURT — European Central Bank staffers believe they must toe the line or face the consequences. That is the message from a staff survey conducted by the ECB in November and December, revealing that the majority have “no confidence” that they can voice their views without inviting retaliation from above. The findings threaten to blemish President Christine Lagarde’s legacy, raising questions about the quality of debate culture within the central bank under her leadership amid ongoing rumors that the Frenchwoman will end her eight-year term early. The results also land at an awkward moment, as the ECB faces legal action from its staff union over alleged efforts to curb free speech. The survey boasted a 75 percent response rate and was shared with staff during a Town Hall meeting on Thursday. The results found that 34 percent of respondents disagreed that they “can freely express” their views “without fear of negative consequences.” Another 24 percent of staffers were unsure how to respond to the statement. Longer-serving staff were more concerned about a possible backlash than newer hires. Lagarde publicly professes diversity. Just this week, she hailed the variety of voices from eurozone central bankers, saying that “diversity is an asset in times of high uncertainty.”  She has also famously blasted economists for forming a “tribal clique” at the 2024 World Economic Forum in Davos, insisting broader perspectives would always lead to better outcomes. That spirit is far from present at the ECB’s headquarters in Frankfurt’s east end, as far as the survey goes. In an interview last year, the ECB union vice president, Carlos Bowles, expressed concern that a “culture of fear” within the Bank will promote self-censorship and groupthink. The ECB’s attempts to prevent the union from airing these concerns in public prompted the legal action against the Bank. The union expresses concern about the survey’s outcome.  “When staff feel unsafe to speak openly, it is not just an HR matter — it becomes a policy risk,” a union spokesperson said. The disconnect between the ECB’s public messaging and perceptions on the ground may be at least partially attributed to the fact that less than a third of its staff believes “the ECB is open in its communication with employees,” as reflected in the survey. An ECB spokesperson said that the bank is “working together with staff and staff representatives to respond to the survey outcomes” and is “fostering a more open and supportive workplace by encouraging honest dialogue, normalizing learning from mistakes and reinforcing behaviors that promote safety and inclusion.” BROKEN CAREER LADDER While the vast majority of staff say they are proud of the ECB’s mission and feel inspired by its work, fewer than one in three would recommend it as a workplace. Career progression is a key concern — a common challenge in public financial institutions. Four out of 10 staffers don’t think they have good opportunities for professional development. That’s a bad look for the ECB’s career ladder. Worse when you include the fact that an additional 20 percent of staffers are unsure of how their career will progress within the central bank. There are some bright spots in the survey, depending on who you ask. While phrasing differences limit comparisons to previous surveys, there seems to be some progress in fair treatment. Nearly two-thirds of survey respondents said they feel the ECB has treated them fairly, whereas in past surveys, nearly two-thirds expressed concerns over favoritism. The ECB promises more progress. It is already translating survey results “into concrete steps— supporting managers in having more meaningful development conversations, creating more direct communication touchpoints with staff, and engaging with long‑tenure colleagues to understand and address their concerns,” the spokesperson said.

The EU’s envoy to Kyiv accused Moscow of war crimes, describing the “humanitarian calamity” unfolding as Russian attacks on Ukrainian energy infrastructure leave some hundreds of thousands of people without heat amid sub-zero temperatures. “Let’s make it very clear — this has been really a war crime to hit and freeze people in their own homes, ordinary civilians,” EU Ambassador to Ukraine Katarina Mathernová said in an interview. Mathernová’s accusations on POLITICO’s EU Confidential podcast last week mark some of the strongest to date from an EU official since Russian President Vladimir Putin began a winter siege on Ukraine’s electric grid. Yet the diplomat, in post since September 2023, is known for her unvarnished descriptions of Ukrainians’ daily struggles on social media and a rigorous accounting — laced with righteous anger — of Russian attacks. As the full-scale invasion grinds toward the end of its fourth year on Tuesday, Mathernová’s mission is as much about sharing Ukrainians’ perspective with the EU as it is transmitting Brussels’ lines to Kyiv. Russia’s systematic bombardment of energy plants has turned the Ukrainian capital into a “frontline city,” she said, describing a city dotted with thousands of Red Cross tents offering tea, phone charging stations and even cots to ride out frigid nights. “Kids do homework there,” she said. “People telework or simply come to get warm.” She pointed to a particularly ruinous attack on Feb. 3, when Russia fired five ballistic rockets that destroyed one of Kyiv’s largest thermal power plants. That left some 350,000 without heat, with temperatures dropping as low as minus 20 degrees Celsius. Mathernová is fighting against an “information fog” that has obscured Kyiv’s acute plight, she said from her office in the capital — before the interview itself was interrupted by an air raid siren. That occurrence has become so commonplace that she displayed more concern about the audio quality than her own safety. The EU’s embassy in Kyiv was itself bombed last summer, and nights punctuated by sirens leave everyone from government officials and foreign diplomats to everyday Ukrainians with the cumulative damage from sleep deprivation. “I think we all suffer from PTSD by now,” she said. UKRAINE IN THE EU ‘HOUSE’ Yet amid this inhumane grind, Mathernová is optimistic that the prospect of some form of EU membership in 2027 could keep Ukrainians’ resolve intact. As POLITICO reported this month, European Commission President Ursula von der Leyen floated the idea of “reverse enlargement” to guarantee Ukraine’s spot in the EU, even if it hasn’t met all the accession criteria — or if it faces a persistent block from Hungary. The EU “has always been very creative in terms of finding legal and institutional workarounds to difficult situations historically,” she said, pointing to the “variable geometry” of systems like Schengen and the eurozone, which include some full EU members but not all. Mathernová offered an analogy of Ukraine being brought into a house, “not all the rooms in the house being available immediately at the outset.” They could continue working “with the ultimate goal of having a full membership.” She added: “My understanding is that this is what colleagues in Brussels are working on.” Ukrainian President Volodymyr Zelenskyy has consistently ruled out anything less than equal EU membership, saying in November that “it has to be fully fledged.” However, Mathernová predicted Ukrainians would accept such an arrangement “if we don’t let various narratives and disinformation about it, like this is not a full membership, etc.,” take hold. “I think if it’s a matter of anchoring Ukraine in the EU as part of its peaceful future, I’m sure they would.” Yet just days after the interview, Mathernová was back to documenting Ukraine’s violent present. On Facebook, with a video of her standing in the snow, she detailed a new overnight toll: 345 drones 50 missiles of various kinds 12 ballistic missiles used just against Kyiv!

Hungarian Prime Minister Viktor Orbán on Monday blamed “an unprovoked act of hostility” from Ukraine to justify his decision to block the EU’s €90 billion loan to Kyiv, according to a letter he sent to European Council President António Costa. Orbán backed the loan in December on the basis that EU leaders exempted Czechia, Hungary and Slovakia from paying down the EU debt. That changed on Friday after Budapest and Bratislava accused Kyiv of slow walking repairs to the damaged 4,000-kilometer Druzhba pipeline, which carries Russian oil to Hungary and Slovakia. “Hungary did not oppose the decision based on the understanding that the loan will not have an impact on the financial obligations” of Prague, Budapest and Bratislava, Orbán wrote in a short letter, dated Feb. 23 and seen by POLITICO. “Recent developments have forced me to reconsider my position.” Costa’s office was not immediately available for comment. Ukraine’s war chest will run out in April without fresh funds, putting Kyiv at a disadvantage against Russian forces and ongoing U.S.-led peace talks with the Kremlin. A Russian drone attack in late January damaged the Druzhba pipeline, which transports Russian oil that is vital to Hungary’s and Slovakia’s energy needs. The European Commission last week said that both countries have 90 days’ worth of oil supplies to avoid an immediate energy crunch. Orbán said Kyiv has refused to restore crude oil supplies via the pipeline since mid-February on political grounds, an accusation Ukraine has dismissed. Hungary and Slovakia are exempt from EU sanctions on Russian product. Russian oil accounted for for 92 percent of Hungary’s energy imports last year, according to the Center for the Study of Democracy, a European policy institute. The Hungarian leader has weaponized anti-Ukraine sentiment ahead of April’s national election, with his political party, Fidesz, trailing the opposition, Tisza, in the polls by a wide margin. He has also used the pipeline issue to justify blocking the EU’s 20th sanctions package against Russia, which requires unanimous support to pass. Brussels had planned to unveil the package on the fourth anniversary of Moscow’s invasion of Ukraine, which is on Tuesday. Hungary can block the €90 billion loan because one of the three bills underpinning the financial aid also requires EU unanimity to expand the cash buffer of the EU’s long-term budget to issue the loan. EU ambassadors will discuss the sanctions package on Monday during the Foreign Affairs Council. Both initiatives remain stuck until the Druzhba pipeline crisis is resolved. “As long as this remains the case, Hungary will not support the amendment of the [multiannual financial framework] regulation necessary for the use of the EU budget headroom for the loan facility,” Orbán wrote.

European Central Bank President Christine Lagarde has urged EU governments to rely on “coalitions of the willing” to push through long-stalled economic reforms, arguing the bloc doesn’t need all 27 countries on board to move forward. In an interview with the Wall Street Journal published Saturday, Lagarde pointed to the 21-country eurozone as proof that deeper integration can work without full unanimity of the EU member states. “We do not have the 27 around the table, and yet it works,” she said. Lagarde’s remarks come as EU leaders debate how to complete the bloc’s long-stalled capital markets union. The project, now dubbed the “Savings and Investments Union,” is intended to deepen cross-border financial markets and mobilize private savings. Frustration over slow progress has led several large EU member states, including France, Germany, Italy and Spain, to back a two-speed approach that would allow smaller groups of countries to integrate more quickly. European Commission President Ursula von der Leyen has said the EU could consider “enhanced cooperation” if unanimity cannot be reached. Lagarde, whose term as ECB president runs until October 2027 and who has faced speculation about a possible early departure, said Europe should focus on delivering concrete reforms. In a sign of growing impatience, Lagarde earlier this month sent EU leaders a five-point checklist of “urgently needed” measures under the subject line “time for action,” outlining measures on capital markets integration, corporate harmonization and research coordination. Even partial implementation of those measures would significantly boost Europe’s growth potential, she told the Wall Street Journal.

BRUSSELS ― Hungary has thrown the EU’s planned €90 billion loan to Ukraine into crisis after threatening to block the deal until the flow of Russian gas resumes through the Druzhba pipeline. The Hungarian government issued the warning on Friday evening, as Prime Minister Viktor Orbán tries to weaponize anti-Ukraine sentiment ahead of a key election where he risks losing power after more than 15 years. “Ukraine is blackmailing Hungary by halting oil transit in coordination with Brussels and the Hungarian opposition to create supply disruptions in Hungary and push fuel prices higher before the elections,” Hungarian Foreign Minister Péter Szijjártó wrote on X. “We will not give in to this blackmail.” Hungary’s threat to veto the loan is a major setback for Ukraine, whose coffers will begin running low on cash from April. Kyiv will struggle to sustain its war effort without fresh funds, leaving it at a disadvantage in ongoing peace talks with Russia. The first signs of trouble began earlier in the day on Friday. Hungary’s ambassador to the EU demanded that its national assembly get the standard eight weeks to scrutinize EU legislation during a meeting of envoys in Brussels, three EU diplomats told POLITICO. EU ambassadors were set to give their final approval for the loan ahead of Tuesday, which marks the four-year anniversary of Russia’s invasion of Ukraine. In a fresh confrontation with Kyiv, Orbán is accusing the war-torn country of halting Russian gas to Hungary for political reasons. Ukraine rejects these claims, arguing that Russian strikes have damaged the energy infrastructure. The European Commission convened an emergency meeting earlier this week to solve the dispute over the Druzhba pipeline after Hungary and Slovakia retaliated by halting diesel supplies to Ukraine. EU leaders, including Orbán, agreed to the €90 billion loan in December following months of fraught negotiations. In a major concession, the EU exempted Hungary, Slovakia and Czechia ― who oppose giving further aid to Kyiv ― from repaying the borrowing costs of the loan. Budapest on Friday refused to clear one bill that requires unanimity to expand the cash buffer, known as the headroom, of the EU’s long-term budget to issue the loan. EU ambassadors backed the other two bills underpinning the Ukraine loan that only needed a simple majority for approval. As Russia’s firmest ally in the EU, Orbán has frequently threatened to block the EU’s financial support to Ukraine. UPDATED: This story has been updated to reflect Hungarian Foreign Minister Péter Szijjártó’s comments online.

ATHENS — Yannis Stournaras was campaigning for eurobonds long before it was trendy. But now the Bank of Greece Governor is setting his sights on his toughest audience yet: The German government. In an interview with POLITICO, Stournaras said the arguments are on his side. Back-to-back crises have left heavy debt burdens on the shoulders of EU governments, limiting the power of the public purse to tackle challenges posed by U.S. trade tariffs, Russia’s war in Ukraine and Chinese threats to limit exports of critical raw materials Without common bonds to fund defense, the green transition and strategic investments, the EU’s economy will fail to compete on the global stage. What’s more, Stournaras has the German and Dutch central banks on his side after the European Central Bank ended a 15-year internal feud over the need for “a common European, highly liquid, euro-wide benchmark safe asset” — in short, eurobonds. The ECB’s Governing Council of central bankers issued their rallying call to EU leaders during an informal summit earlier this month. It’s time governments got on board too, according to Stournaras. “The present international environment has been a wake-up call to European policymakers,” the 69-year-old said. “The resulting political momentum is certainly promising.” His optimism contrasts with continued opposition from German Chancellor Friedrich Merz, who rejected the idea outright at an EU summit last week. “I do worry,” Stournaras said about continued pushback from Berlin. “But I’d like to convince them.” Stournaras, who served as Greek finance minister from 2012 to 2014 before moving to the central bank, certainly has a lot of practice in such advocacy. He had long found himself isolated, along with his Italian colleague, on the Governing Council. During the height of the sovereign debt crisis, their position was often ascribed to national interest, as their countries stood to benefit disproportionately from shared borrowing. “Some years ago, we were one, maximum two Governing Council members arguing in favor of eurobonds,” Stournaras recalled. “The rest of us thought, ‘You are coming from the European South, so it’s understandable.’ But now we have all realized how important it is.” Now, even Germany’s Bundesbank, the de facto leader of the skeptics, has turned. As Stournaras sees it, the fact that southern EU countries that were teetering on the brink of bankruptcy a decade ago are now performing well has helped to shift views. Certainly, the subsidy from Berlin to other capitals that is implicit in joint borrowing has shrunk sharply. The infamous “spreads,” which represent how much more Greece and Italy had to pay than Germany to borrow for 10 years, now stand at less than 1 percentage point. INVESTOR APPETITE The most powerful argument, however, is a clear message from investors that all of Europe will benefit from joint debt, Stournaras argued. “If you talk to any important wealth manager, either in Europe or in the United States, and ask her why most of the current account surplus we have in Europe is flowing abroad, she will tell you that the lack of sufficient safe assets is the critical issue,” he said. “It is even more important than the rate of return.” Joint issuance should serve “well-defined common European purposes,” Stournaras said. “You have three common needs in Europe that can be funded commonly. Defense, green transition, innovation.” Advocates of joint borrowing argue that a more liquid market for safe euro assets will enhance the region’s relative attractiveness for global capital, at a time when the reliability and desirability of dollar assets are coming under increasing scrutiny. Competing with the dollar for global reserve currency status could ultimately — if only gradually — lower the cost of borrowing and investing for governments, companies and households. The Greek declined to say how much new debt, exactly, would be needed to make a real change to financial conditions in Europe, but said there needs to be meaningful amounts of both short- and long-term issuance. Short-term debt serves largely as a place for investors to ‘park’ money temporarily, while long-term debt typically provides a benchmark price for private-sector projects with long pay-off periods, such as infrastructure. MORAL HAZARD Stournaras stressed that eurobonds “cannot become a substitute for sound national fiscal frameworks.” But he argued that new rules or oversight bodies are also unnecessary. The central banker pointed to past experience — specifically the €800 billion post-pandemic recovery fund — as a successful precedent. “Crucially, [recovery fund] financing was linked to clearly-defined European objectives, time-bound commitments and reform conditionality. This architecture helped alleviate moral hazard, while enhancing credibility in markets,” he said. Critics would argue that moral hazard wasn’t completely removed. Under Prime Minister Giuseppe Conte, Italy, in particular, helped to finance its budget-busting “Superbonus” tax credit with NGEU money, forcing Conte’s successor Giorgia Meloni into drastic corrective action in recent years. The debate over Europe’s financial architecture is proving more exciting this year than the near-term monetary policy outlook. Stournaras said that “the euro area economy remains in a good place” with inflation projected to converge to the ECB’s 2 percent target over the medium term and the economic activity proving resilient. He acknowledged that the risks to growth and inflation appeared broadly two-sided. But on balance, he said, there’s a “slightly higher” chance of the ECB’s next move being down rather than up.  In any case, he said, there is no reason to hold one’s breath: “Unless the sky falls on our head, don’t expect sexy news from Frankfurt this year.”