ECB says Europe more resilient, gains flexibility on shocks

The European Central Bank now has greater flexibility to manage inflation shocks due to the eurozone's increased economic resilience, ECB President Christine Lagarde said on Monday. Speaking at the central bank's annual forum in Sintra, Portugal, Lagarde argued that stronger banking regulation, improved fiscal frameworks, and investment in low-carbon energy have helped contain the economic fallout from recent disruptions.

Lagarde cited the collapse of Silicon Valley Bank, U.S. tariff policies, and a major recent oil supply shock as events Europe absorbed without broader financial instability. This enhanced resilience means policymakers may increasingly operate in an intermediate zone, she said, between shocks that can be temporarily overlooked and those requiring a forceful monetary response. She noted that Europe is likely to face a growing number of inflation shocks in the coming years, making this flexibility crucial.

The comments come weeks after the ECB raised its key deposit rate to 2.25% in June, a move Lagarde defended as a robust decision based on the inflation outlook. She stated that nothing observed since then had undermined that assessment and rejected...