Isabel Schnabel, ECB Executive Board member, discusses euro area growth, inflation, monetary policy, and the impact of AI and digital euro plans in an interview conducted on December 3, 2025.
Isabel Schnabel, Member of the Executive Board of the European Central Bank (ECB), was interviewed by Jana Randow and Mark Schrörs on December 3, 2025.
She highlighted that the euro area economy has been more resilient than expected, with upgraded growth projections for 2025 and signs of continued growth in the fourth quarter. Key drivers include a strong domestic demand, a robust labor market, fiscal expansion, and increased private investment, particularly in AI-related activities.
Schnabel noted that uncertainty has decreased due to improved trade agreements and global economic resilience, which supports future growth. Risks are now tilted to the upside compared to previous projections.
Regarding inflation, she stated it is currently around 2%, with medium-term projections also near this level. Challenges remain in services inflation, driven by wage growth and demographic factors, while goods inflation remains low. Risks to inflation are tilted to the upside, with persistent food inflation and higher inflation expectations.
The ECB’s projections now include 2028, with no immediate concern for inflation undershooting targets, provided deviations are small and temporary. Schnabel emphasized the importance of monitoring inflation expectations and the overall macroeconomic narrative.
On monetary policy, she expects interest rates to remain stable unless larger shocks occur, with the possibility of future hikes if inflation risks increase. The timing of rate hikes remains uncertain, with some market expectations pointing to mid-2026 or late 2024.
Schnabel discussed the potential impact of US Federal Reserve policies, noting that divergence in monetary policy is possible and that the ECB operates independently based on its own data.
Regarding liquidity, she explained that excess liquidity remains abundant, with normalization expected to begin in the second half of 2026. The transition will be monitored, and structural liquidity needs will be discussed in upcoming reviews.
She addressed the possibility of structural refinancing operations and the role of a structural bond portfolio, emphasizing that both could be used to meet liquidity needs. She also commented on the recent ECB study indicating that corporate bond spreads are increasingly driven by firm-specific factors, suggesting a more integrated European bond market.
On debt sustainability, Schnabel stressed the importance of growth and wise use of borrowed funds, noting that higher growth reduces debt concerns even with rising public debt levels.
She refrained from commenting on specific German fiscal decisions but emphasized that fiscal spending’s impact depends on its composition and accompanying structural reforms.
Regarding AI, she acknowledged its uncertain impact but noted increasing investments and productivity opportunities, which could influence the natural rate of interest (r*).
Schnabel expressed support for simplifying banking regulations while maintaining core safeguards, citing the success of post-2008 reforms in preventing crises despite shocks.
On digital currencies, she discussed the potential for euro-denominated stablecoins, emphasizing their use in cross-border payments and the unlikely scenario of replacing the digital euro within Europe due to stability and sovereignty concerns.
Finally, she mentioned her openness to the possibility of becoming ECB president, should the opportunity arise, amid ongoing discussions about the ECB’s leadership structure.
