LONDON — Keir Starmer’s keeping Britain out of the war in Iran — but he can’t duck the conflict’s grave economic consequences. In a sign of growing fears about the impact of the war on Britain, the prime minister chaired a rare meeting of the government’s emergency COBRA committee Monday night, joined by senior ministers and Governor of the Bank of England Andrew Bailey. Starmer’s top finance minister, Rachel Reeves, will update the House of Commons on the economic picture Tuesday, as an already-unpopular administration worries that chaos in the Middle East is shredding plans to lower the cost of living and get the British economy growing. For Starmer’s government — headed for potentially brutal local elections in May — the crisis in the Gulf risks a nightmare combination of a rise in energy prices, interest rates, inflation and the cost of government borrowing that threatens to undermine everything he’s done since winning office. Economists are now warning that even if Donald Trump’s promise of a “complete and total resolution of hostilities” with Iran were to bear fruit, the effects on the British economy could still last for months. Already there are signs of a split within Starmer’s party over how to respond. Labour MPs want the government to think seriously about action to protect households — but Starmer and Reeves have long talked up the need for fiscal responsibility, and economics are warning that there’s little room for maneuver. Fuel prices displayed at a Shell garage in Southam, Warwickshire on March 23, 2026. | Jacob King/PA Images via Getty Images Jim O’Neill, a former Treasury minister who served as an adviser to Reeves, told POLITICO the government should “not get sucked into reacting to every external shock” and “concentrate on boosting our underlying growth trend.” WHY THE UK IS SO HARD HIT Just before the outbreak of war, there was reason for Starmer and Reeves to feel quietly optimistic about the long-stagnant British economy. The Bank of England had expected inflation to fall back sustainably toward its two percent target for the first time in five years, giving the central bank the space to carry on cutting interest rates.  With the Iran war in full flow, it was forced to rewrite those forecasts at the Monetary Policy Committee’s meeting last week — and now sees inflation at around 3.5 percent by the summer. The U.K. is a big net importer of energy and also needs constant imports of foreign capital to fund its budget and current account deficits. That’s made it one of first targets in the financial markets’ crosshairs. The government’s cost of borrowing has risen by more than half a percentage point over the last month. That threatens both the real economy and Reeves’ painstakingly-negotiated budget arithmetic. Higher inflation means higher interest rates and a higher bill for servicing the government’s debt: fiscal watchdog the Office for Budget Responsibility estimates a one-point increase in inflation would add £7.3 billion to debt servicing costs in 2026-2027 alone. The effect on businesses and home owners is also likely to be chilling. Britain’s banks are already repricing their most popular mortgages, which are tied to the two-year gilt rate. Hundreds of mortgage products were pulled in a hurry after the MPC meeting last week, something that will hit the housing market and depress Reeves’ intake from both stamp duty and capital gains. Duncan Weldon, an economist and author, said: “Even if this were to stop tomorrow, the inflation numbers and growth numbers are going to look materially worse throughout 2026. “If this continues for longer… it’s an awful lot more challenging and you end up with a much tougher budget this autumn than the government would have been hoping to unveil.” DECISION TIME The U.K.’s economic plight presents an acute political headache for Starmer, as he faces a mismatch between his own party’s expectations about the government’s ability to help people and his own scarce resources. Energy Secretary Ed Miliband has promised to keep looking at different options for some form of assistance to bill-payers hit by an energy price shock. A pain point is looming in July, when a regulated cap on energy costs is due to expire and bills could jump significantly. One left-leaning Labour MP, granted anonymity to speak frankly, said: “They [ministers] need to be treating this like a financial crisis. They need plans for multiple scenarios with clear triggers for government support.” A second MP from the 2024 intake said “it’s right that a Labour government steps in, particularly to help the most vulnerable.” Foreign Secretary Yvette Cooper and Chancellor of the Exchequer Rachel Reeves at the first cabinet meeting of the new year at No. 10 Downing St. on Jan. 6, 2026 in London, England. | Pool photo by Richard Pohle via Getty Images This demand for action is being felt in the upper echelons of the party too, as Culture Secretary Lisa Nandy recently argued Reeves’ fiscal rules — seen as crucial in the Treasury to reassure the markets — may need to be reconsidered if prices continue to rise and a major support package is needed.  One Labour official said there are clear disagreements with Labour over how to go about drawing up help and warned “the fiscal approach is going to be a massive dividing line at any leadership election.” The same official pointed to recent comments by former Starmer deputy — and likely leadership contender — Angela Rayner about the OBR, with Rayner accusing the watchdog of ignoring the “social benefit” of government spending. Despite the pressure, ministers have so far restricted themselves to criticizing petrol retailers for alleged profiteering, and have been flirting with new powers for markets watchdog the Competition and Markets Authority. The government said Reeves would on Tuesday set out steps to “help protect working people from unfair price rises,” including a new “anti-profiteering framework” to “root out price gouging.” But Starmer signaled strongly in an appearance before a Commons committee Monday evening that he was not about to unveil any wide-ranging bailout package, telling MPs he was “acutely aware” of what it had cost when then-Prime Minister Liz Truss launched her own universal energy price guarantee in 2022.  O’Neill backed this approach, saying: “I don’t think they should do much… They can’t afford it anyhow. The nation can’t keep shielding people from external shocks.” Weldon predicted, however, that as the May elections approach and the energy cap deadline draws nearer, the pressure will prove too much and ministers could be forced to step in. The furlough scheme rolled out during the pandemic to project jobs and Truss’s 2022 intervention helped create “the expectation that the government should be helping households,” he said. “But it’s incredibly difficult. Britain’s growth has been blown off-course an awful lot in the last 15 years by these sorts of shocks.” Geoffrey Smith, Dan Bloom, Andrew McDonald and Sam Francis contributed to this report.

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.

The Bank of England warned it may have to take a tougher line on interest rates as the spike in energy prices caused by the U.S.-Israeli war on Iran pushes inflation higher. “Monetary policy cannot reverse this shock” to world energy supply, Governor Andrew Bailey said in a statement on Thursday, after the Monetary Policy Committee voted unanimously to leave the Bank rate unchanged at 3.75 percent. “Monetary policy must, however, respond to the risk of a more persistent effect on U.K. consumer price inflation,” Bailey added. The Bank had only last month declared victory over inflation, which has been above its 2 percent target for over four years. However, its latest analysis suggests headline inflation will rebound back above 3 percent in the next three months and could add as much as 0.75 percentage points to the consumer price index over the summer, as higher fuel bills percolate through the economy. “The MPC is alert to the increased risk of domestic inflationary pressures through second-round effects in wage and price-setting, the risk of which will be greater the longer higher energy prices persist,” the Bank stressed. However, it also acknowledged that the energy price spike is likely to hurt economic growth, and that it is “assessing the implications for inflation of the weakening in economic activity that is likely to result from higher energy costs.” Until the U.S. and Israel attacked Iran, most analysts had predicted that a slowing economy and growing prospects of easing inflation would allow the MPC to cut rates at Thursday’s meeting. However, the invasion and the ensuing turmoil in world commodity markets have turned the situation on its head, by closing a vital chokepoint at the mouth of the Persian Gulf, through which irreplaceable volumes of oil, gas and fertilizer pass every day. As a result, the Bank warned that there is now a real threat of higher energy prices causing a broader rise in prices across the economy. Food prices face a similar risk. ALREADY OUT OF DATE? The situation is changing so fast that the Bank’s latest forecasts could already be out of date. The Bank said they were based on the situation as of March 16, when Brent oil futures were only at $100 a barrel. But a succession of strikes on key energy installations around the Persian Gulf since then has already pushed prices up by another 12 percent. “The news flow around the war in Iran looks more worrying for global markets with each passing day,” Deutsche Bank strategist Jim Reid said in a note on Thursday. Analysts argued ahead of the meeting that the Bank would prefer to err on the side of keeping policy tight in the face of the new risks, given lingering concerns about its credibility due to its slow response to the inflation shock in 2022. Inflation peaked at 11.1 percent back then, the highest rate posted by any major economy. The Bank’s change in outlook will make life doubly uncomfortable for the Labour government, which had hoped that its efforts to close the U.K. budget deficit would be rewarded with lower inflation and lower interest rates. Instead, the government’s key 10-year borrowing costs have risen by nearly half a percentage point since the war started, and they leaped again on Thursday, first in response to Iranian attacks on a Qatari gas field, then to the BoE’s statement. At 4.89 percent, the 10-year gilt yield is now at its highest in 15 months. The pound, by contrast, was steady against the dollar and euro after the decision. The Office for Budget Responsibility earlier this month already cut its forecasts for U.K. growth this year. That implies lower tax receipts which, combined with higher borrowing costs, threaten a new two-way squeeze on Chancellor Rachel Reeves’ fiscal arithmetic, less than six months after she had to raise taxes sharply at her latest budget.

A federal judge has quashed the Justice Department’s criminal probe into Federal Reserve Chair Jerome Powell’s Senate testimony regarding the central bank’s headquarters renovation, writing that the grand jury subpoenas were a “mere pretext” to pressure the Fed. “There is abundant evidence that the subpoenas’ dominant (if not sole) purpose is to harass and pressure Powell either to yield to the President or to resign and make way for a Fed Chair who will,” Chief U.S. District Judge James Boasberg wrote. “The Government has offered no evidence whatsoever that Powell committed any crime other than displeasing the President.” U.S. Attorney for D.C. Jeanine Pirro, whose office led the investigation, said in a press conference afterward that she would appeal the decision. She sharply criticized Boasberg, saying he “put himself at the entrance door to the grand jury, slamming that door shut, irrespective of the legal process, and thus preventing the grand jury from doing the work that it does.” “This process has been arbitrarily undermined by an activist judge,” she said. Pirro’s plan to appeal the decision could further delay the confirmation process of President Donald Trump’s pick to replace Powell, former Fed Gov. Kevin Warsh. Warsh’s nomination has been blocked by outgoing Sen. Thom Tillis until the investigation into Powell is resolved. The North Carolina Republican warned the administration on Friday afternoon against appealing the decision. “We all know how this is going to end, and the D.C. U.S. Attorney’s Office should save itself further embarrassment and move on,” Tillis posted on X. “Appealing the ruling will only delay the confirmation of Kevin Warsh as the next Fed Chair.” The White House did not immediately respond to a request for comment. Trump has severely criticized Powell for more than a year for his reluctance to lower interest rates, with the president accusing him of holding back the economy. Powell has said the subpoenas were part of Trump’s pressure campaign to force him to cut borrowing costs. The investigation into Powell’s testimony on the status of a costly renovation of the central bank’s headquarters kicked off a firestorm that threatens Trump’s aims to stack the Fed board with appointees who share his views on lowering short-term borrowing costs. Powell’s term as chair expires in May, and Pirro’s vow to appeal the decision could prolong a legal clash that will keep the Fed’s future leadership up in the air. Tillis, who has vowed to block any Fed picks until the Powell probe is publicly dropped, sits on the Senate Banking Committee, which has jurisdiction over Fed nominations. Republicans have a 13-11 majority on the committee, meaning that Tillis’s vote is needed to advance any nominee to the Senate floor if every Banking Committee Democrat votes against them. In a hearing before the committee last June, the panel’s chair, Tim Scott (R-SC), asked Powell about the status of the Fed’s renovations after a New York Post article characterized them as akin to the “Palace of Versailles.” Powell told senators that “there’s no new marble. There are no special elevators. There are no new water features. There’s no beehives, and there’s no roof terrace gardens.” That caught the eye of Federal Housing Finance Agency Director Bill Pulte, who urged lawmakers to look into the matter, and the White House launched its own probe into the project last summer. Several Senate Banking Republicans — including Scott — have said they do not believe Powell committed a crime with his testimony. Sen. Cynthia Lummis (R-Wyo.), a Powell critic, said in a statement that the Fed chief “was wildly underprepared for his testimony, but, as I have said before, I’m not sure it rose to the criminal level.” Wall Street executives and top lawmakers have repeatedly cautioned Trump against actions that might undermine the central bank’s ability to independently set interest rates, which bolsters its credibility and is viewed as a stabilizing force for global markets. Trump has also tried to fire Fed Gov. Lisa Cook over unsubstantiated allegations of mortgage fraud — her fate will be determined by the Supreme Court — and the president has flirted numerous times with attempting to dismiss Powell. In January, Powell posted an extraordinary two-minute video to the central bank’s website claiming that the DOJ’s subpoenas represented a politically motivated attempt to pressure the central bank into lowering interest rates. The threat of criminal charges was a “consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president,” he said. The move was unusual because Powell has steadfastly refused to respond to Trump’s blizzard of insults since he returned to the White House. The president has publicly questioned Powell’s intelligence and competence, and has said his monetary policy decisions are driven by politics. In her combative press conference, Pirro called the judge’s decision on Friday “outrageous.” She cited a Supreme Court precedent that grand juries can investigate mere rumors. And she dismissed suggestions that she should look skeptically at allegations that may be politically motivated. “I’ll take a case from the devil if you can give me information that will lead me to possibly find a crime,” she said. “It doesn’t matter where the case comes from.” While Pirro suggested it is exceptional for a judge to block a grand jury subpoena, federal court rules allow them to do so if they believe a subpoena is “unreasonable or oppressive.” In his ruling, issued Wednesday and unsealed on Friday, Boasberg noted that numerous court precedents authorize judges to quash a subpoena when its “sole or dominant” purpose is improper. Boasberg, an appointee of President Barack Obama, conceded that the subpoenas issued to the Fed were relevant to a criminal investigation. But he said their obvious connection to attempts to exert unlawful pressure on Powell and other members of the Fed’s Board of Governors rendered the subpoenas unenforceable. “The President spent years essentially asking if no one will rid him of this troublesome Fed Chair. He then suggested a specific line of investigation into him,” the judge wrote. “The President’s appointed prosecutor promptly complied.” Boasberg’s rejection of the subpoenas to the Fed is just the latest clash between the chief judge of the federal district court in the capital and the Trump administration. The judge’s earlier rulings in a dispute over Trump’s drive to rapidly deport alleged gang members under a two-century-old wartime authority led Trump to call for Boasberg’s impeachment. Some House members embarked on that effort last year, but it has not progressed. Pirro said that in addition to an appeal, which would go to the D.C. Circuit Court of Appeals, prosecutors intend to ask Boasberg to reconsider his ruling because it included some inaccurate dates. That could delay any appeal because judges typically cannot alter rulings while they are under appeal.

BRUSSELS — The right to use Swiss franc banknotes and coins will be enshrined in Switzerland’s constitution after voters on Sunday backed a measure designed to safeguard the use of cash in society. Preliminary official estimates revealed 69 percent of voters backed the legal amendment, which the government proposed as a counter to a similar initiative by a group called the Swiss Freedom Movement. The Swiss Freedom Movement triggered the national referendum after its initiative to protect cash collected more than 100,000 signatures, triggering a national referendum. Its initiative secured only 46 percent of the final vote after the government said some of the group’s proposed amendments went too far. The vote means Switzerland will join the likes of Hungary, Slovakia and Slovenia, which have already written the right to cold, hard cash in their constitutions. Austrian politicians are also debating whether to follow suit, as people’s payment habits become increasingly digital — especially since the pandemic. The trend has fanned Big Brother conspiracy theories that governments aim to control populations by withdrawing cash altogether. The European Central Bank’s plans to issue a virtual extension of the euro have fanned those fears, prompting the EU’s executive arm to propose a bill that will cement physical cash in societies across the bloc. Switzerland, too, has seen a drop in cash payments over the past decade. More than seven out of 10 payments at the till were in cash in 2017. In 2024, cash only featured in 30 percent of in-shop transactions, according to data from the Swiss National Bank. The Swiss Freedom Movement has previously pursued campaigns to sack unpopular government ministers, ban electronic voting, and protect citizens from professional or social retribution if they refuse to be vaccinated against Covid-19 — none of which made it to the ballot box.

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.

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.” 

It might be premature for succession talks over the European Central Bank presidency, considering incumbent Christine Lagarde still has 18 months left in her eight-year reign. But speculation is rife after recent reports suggested the Frenchwoman could step down ahead of her planned exit date of Oct. 31, 2027, fast-tracking the debate over who will secure the most powerful economic post in Europe. Lagarde’s job is among three high-ranking vacancies that will emerge on the ECB’s six-person executive board next year. Eurozone leaders will have the final say on who gets a seat at the table, as part of a horse-trading exercise that considers who occupies the most influential positions in the EU — and what passports they hold. As Brussels girds itself for the usual undignified and thoroughly untransparent horse-trading, here’s your essential and speculative guide to understanding the looming ECB race. WHO’S THE FAVORITE TO SUCCEED LAGARDE? Klaas Knot, the two-term governor of the Dutch central bank and former head of the Financial Stability Board, has all the experience and qualifications needed for the job. A noted belt-tightening fiscal hawk in his first term, Knot softened his stance as the sovereign debt crisis was mastered, seemingly with one eye on the succession in Frankfurt. Some of the ECB’s current top brass see him as a little too close to politicians, but that may not count against him given it’s heads of government who make the appointment. On the minus side, Knot is currently out of the policy circuit, leaving him with no official machinery to help him campaign. That will count against him the longer the situation lasts, so anything that sounds like a starting pistol will be music to his ears. WHO’S THE INSIDER FAVORITE? Pablo Hernández de Cos, the former Bank of Spain governor, now running the Bank for International Settlements, is another highly qualified candidate. De Cos restored the Bank of Spain’s reputation after years of muddled and politically compromised leadership. However, building that reputation involved criticizing Prime Minister Pedro Sánchez’s government for its timid pension reform, which may cost him political support in Madrid. Also, moving De Cos from the standard-setting body in Basel might cost Europe a prestigious and influential seat in global finance, given the antagonism of the current U.S. administration toward Europe’s elite. Madrid has also long stated its desire to advance someone for the ECB presidency. WHERE’S GERMANY IN ALL THIS? There’s a strong sense — at least in Berlin — that it’s Germany’s turn to have an ECB president after watching two French presidents and one Italian play fast and loose with the formidable legacy of the Bundesbank and the Deutsche Mark over the last 20 years. Three candidates could put themselves forward for the job. Klaas Knot, the two-term governor of the Dutch central bank and former head of the Financial Stability Board, has all the experience and qualifications needed for the job. | Mateo Lanzuela/Europa Press via Getty Images Isabel Schnabel: The ECB’s current head of markets is keen on the position and has recently developed a conspicuous penchant for upbeat, big-picture takes on Europe’s future, which may or may not be aimed at reassuring Southern Europe that she is more than just a typical German hawk. However, precedent is against giving anyone a second term on the board and ECB insiders suggest she can be a somewhat divisive personality. Joachim Nagel: The current Bundesbank president is a more emollient figure, but has clashed more than once with Chancellor Friedrich Merz, most recently on the thorny issue of allowing the EU to issue more joint debt. A member of the Social Democratic Party, Merz’s junior partner in Berlin, Nagel may also be more useful to Merz in keeping the SPD onside in the debate over domestic policy than he would be across town at ECB headquarters. Jörg Kukies: Having been finance minister under Chancellor Olaf Scholz, Kukies has all the political connections he might need to secure the job. Although an SPD member like Nagel, Kukies’ politics are highly pragmatic and are unlikely to prevent Merz from supporting him. Isabel Schnabel, the ECB’s current head of markets is keen on the position and has recently developed a conspicuous penchant for upbeat, big-picture takes on Europe’s future. And, like ex-ECB President Mario Draghi before him, financial markets will like the fact that he also spent years at Goldman Sachs WHO’S THE FALL-BACK OPTION? International Monetary Fund Managing Director Kristalina Georgieva has a decent resume but lacks the direct political patronage at the head-of-government level that would normally be needed to land the role. However, at least her native country, Bulgaria, is now actually part of the eurozone, and no one should rule out the possibility of someone thinking of her after 16 hours of rancorous haggling in Brussels.

LONDON — A Reform UK government would keep the Office for Budget Responsibility and maintain the independence of the Bank of England, Robert Jenrick, the party’s new “shadow chancellor,” will say at an event in the City of London Wednesday. Jenrick was only appointed to the role – which makes him the Treasury spokesperson for the right-wing populist party leading in British polls — Tuesday. Already, he’s being sent out to tell figures and journalists in London’s financial powerhouse that Reform would back the two totemic economic institutions. It’s an effort to reassure investors and businesses that Reform can be trusted with the British economy. It was only last month that his party leader, Nigel Farage, told the World Economic Forum in Davos he doesn’t like banks, would scrap interest payments lenders receive through the BoE’s quantitative easing program, and refused to rule out appointing his own governor to the central bank. Earlier this year Farage stated that he was giving “serious thought” to scrapping the OBR, which provides independent analysis of government spending plans. In November, Farage and his deputy Richard Tice U-turned on a plan to dish out £90 billion in tax cuts, which was initially pledged in the party’s 2024 election manifesto. Jenrick will vow Wednesday that Reform UK will be focused on “restoring stability” and “eliminating wasteful spending.” Although Jenrick will claim that the BoE would keep its independence under a Farage government, he will add that the Bank would be stripped of “ancillary responsibilities,” such as considering the impact of climate change, and will follow his leader in having a crack at the institution for “excessive quantitative easing” and “taking its eye off the ball on inflation.” He’ll say the Bank’s rate-setting committee must have private sector representation, and say the OBR will have to open itself up to more “outside, proven forecasting expertise,” too. “The OBR is far from perfect,” he will say. “But the impetus for its creation was a desire to instill fiscal discipline, and that is something we wholeheartedly endorse. Rather than abolish it, we will reform it. We will break up this cosy consensus and ensure it has diversity of opinion,” Jenrick will say today. “We will demand that the Bank is a more open institution, and the private sector better represented on the Monetary Policy Committee.” In previous statements, Farage has also been a critic of City watchdog the Financial Conduct Authority, hinting that he wants to strip the FCA of its power to regulate the banking industry, and slamming its approach to crypto regulation. However, there was no mention of the FCA in Reform’s preview of Jenrick’s speech released by the party. Britain’s possible future chancellor is only a fledgling Reform MP, after planning to defect from the Conservative Party in mid-January — and then being kicked out after Tory Leader Kemi Badenoch discovered he was a flight risk. Farage announced Jenrick, a former Conservative housing secretary, and exchequer secretary to the Treasury in Theresa May’s government, would get the top Treasury job in a would-be Reform government at an unveiling event Tuesday. The title, “shadow chancellor,” is one normal used by the official opposition in the U.K., so the badging is being seen as a power play by Farage’s team as it tries to replace the Tories. Jenrick said Tuesday that he intends to “get out to talk to businesses in the City and, frankly, right across the country,” so that Reform and the sector can have a “productive relationship.”

FRANKFURT — The head of Germany’s central bank has called for the EU to issue more joint debt, putting him at odds with Chancellor Friedrich Merz who wants to keep it strictly as a response to emergencies. “To make Europe attractive also means to attract investors from outside,” the German central bank governor, Joachim Nagel, told POLITICO ahead of an informal summit of EU leaders on Thursday to address the bloc’s economic challenges. “A more liquid European market when it comes to safe European assets would support that.” Eurozone central bankers — who have for the first time coalesced around support for joint debt — have sent EU leaders a wish-list of reforms to ensure that Europe’s economy can reform and keep pace with the U.S. and China. The European Central Bank’s policymakers, Nagel said in an interview on Friday, see “the benefits of creating a common European, highly liquid, euro-wide benchmark safe asset. Action is necessary.” But Nagel’s break from Germany’s traditional opposition to joint debt comes at an awkward time for Berlin. Earlier this week, the German government rebuked a rallying call from French President Emmanuel Macron to issue more eurobonds to boost certain sectors, such as artificial intelligence, European defense, semiconductors and robotics. The EU could also exploit U.S. President Donald Trump’s erratic foreign policy goals and lure global investors across the Atlantic. “The global market … is more and more afraid of the American greenback. It’s looking for alternatives. Let’s offer it European debt,” Macron told a group of reporters on Monday. Joint debt, known by the market shorthand of “eurobonds,” has long been a divisive topic. Since the sovereign debt crisis, southern European governments have pushed for eurobonds to spread the burden of national debt more evenly across the region. Frugal northern states, by contrast, have warned they risk undermining fiscal discipline — and have refused to put their taxpayers on the hook for debts racked up elsewhere. The Bundesbank has long been the de facto leader of the skeptics in northern and central Europe who believe eurobonds are best suited to isolated crises that require drastic action. These include an €800 billion post-pandemic recovery plan and a €90 billion loan to Ukraine to finance its defense against Russia. The last thing the so-called frugal bloc wants is for the EU to get into the habit of raising common debt to solve all of its issues. But times are fast changing. “Tradition is something that is a reflection of the reality of the past,” Nagel said when asked about the Bundesbank’s shift, stressing that Europe’s security has not been as threatened as today since World War II. “Now we have a different reality.” EUROBONDS, WITH LIMITS Support for joint debt does not mean the Bundesbank is dropping its commitment to ensuring sound fiscal policies. A European asset would only support “specific purposes,” and “how it is controlled by the European authorities and the Member States should be equally clear,” the 59-year-old said. Eurobonds must also be accompanied by debt reduction at the national level. “European debt is not a free lunch. And doubts about fiscal sustainability should not jeopardize the chances for improved common policies,” he said. Nagel stopped short of saying how much EU debt is needed to achieve real change. “I won’t give you a number,” he said, but added that “if you want to create something liquid, you have to give the markets an indication about the volume that you will supply over a certain period of time and for a certain purpose.” The central banker would not be drawn into whether Berlin might also adjust its views to reflect the new reality. “I see my role as giving advice on what could be a way out of a complicated situation that we are confronted with in Germany and in Europe,” he said. AUTONOMY, NOT SUPREMACY But a more efficient euro capital market is only one front in the battle to secure Europe’s economic independence and autonomy, Nagel said, adding that it will be equally important to ensure that the continent’s payment system can function independently from outside pressure. “Payment solutions, in an extreme scenario, could be weaponized,” he said.  Accordingly, he argued, the bloc needs to break the duopoly that U.S. credit card giants Mastercard and Visa hold over Europe’s payment rails across its borders. The key to payment security, he went on, is to mint a virtual extension of euro banknotes and coins that can settle transactions across the EU in seconds. The twin projects of the digital euro and perfecting the euro capital market may help boost Europe’s strength and autonomy, but still don’t amount to a masterplan to steal the dollar’s crown. And Nagel added that last week’s hint by the ECB about expanding its liquidity lines to central banks around the world, securing companies’ access to euros in times of stress, should not be seen as motivated by a political desire to boost the euro. “It is about monetary policy,” he said. Since last summer, Lagarde has urged Europe to seize a “global euro moment” as cracks began to appear in U.S. dollar dominance. While Nagel believes that “the euro could play here a significant role” as investors rebalance their portfolios to adjust to the new reality, he is not a fan of quick shifts. “I’m not in favor of fast tracking, jumping from one level to the next,” he said. “Often, such a development is not a very healthy one. I’m comfortable with gradual progress on the international role of the euro, as long as it’s moving in the right direction.”