Frank Elderson, ECB Vice-Chair, talks about interest rates, inflation outlook, risks, and banking sector stability in an interview conducted on November 4, 2025.
Frank Elderson, Member of the Executive Board of the European Central Bank (ECB) and Vice-Chair of the Supervisory Board, was interviewed by Andrés Stumpf on November 4, 2025.
Regarding interest rates, he stated that the current level is appropriate, but decisions will remain data-dependent and made one meeting at a time. The ECB aims for inflation to converge to 2% in the medium term, with risks balanced between higher and lower inflation scenarios.
He highlighted risks to inflation, including global trade fragmentation, increased spending, extreme weather, climate crises, euro appreciation, and shifts in demand due to currency re-routing. The ECB monitors exchange rates but does not target a specific rate, considering macroeconomic factors and lag effects.
On the Spanish economy, he noted it is the fastest-growing large euro area economy, driven by immigration, a resilient labor market, exports, tourism, and renewable energy exports. Challenges include housing shortages and productivity issues, requiring continued investment and reforms.
European economic prospects have improved recently, with positive developments in US-EU trade, Middle East ceasefire, and US-China negotiations. However, uncertainties remain, including global trade tensions, geopolitical risks, and market sentiment deterioration.
Regarding EU defense spending, he said it could boost growth if investments are well-structured, but should not be viewed solely as a growth strategy. Structural reforms like completing banking and capital markets unions are essential for long-term competitiveness.
He affirmed that European banks are strong, well-capitalized, and resilient, with recent stress tests confirming their stability. Challenges include digital transformation, climate risks, and geopolitical uncertainties. He emphasized that regulation should be effective but not excessive, and that Basel III standards are crucial for international banking stability.
On banking mergers, he noted that political interference should not undermine prudential principles. Cross-border mergers can enhance competitiveness and resilience, but progress is hindered by obstacles to banking union and single market integration.
He expressed confidence that Europe is ready for pan-European banks from a financial and institutional perspective, with political will needed to remove remaining barriers. Deeper banking union would facilitate the creation of truly transnational banks, improving resilience, reducing costs, and supporting digitalization.
Regarding climate risk management, he mentioned that the ECB has sanctioned ABANCA for inadequate environmental risk practices, following a supervisory deadline in 2023. These efforts aim to enhance bank resilience and reduce Europe’s exposure to shocks.
