Interview with Ansa

Interview with Philip R. Lane, Member of the Executive Board of the ECB, conducted by Domenico Conti on 1 October 2026

6 October 2026

The first question is about the scenarios that the ECB has run since the start of the Middle East war. Where we are right now in relation to these scenarios?

We have found it useful to put out these scenarios. But let me emphasise, they make different assumptions about the price of oil and the price of gas. But they also make different assumptions, for example, about the strength of the second round effects, how quickly the energy prices will transmit to the wider inflation rate and to the economy.

This is something we don’t learn about every day. What is true is that energy prices are higher than we expected in our baseline. But I don’t want to convert that into any one scenario. Because the scenarios are a collection of different assumptions. And on the second round effects, we have not seen, so far, very strong second round effects. We continue to look at them. That’s why, even though I am a promoter of the scenarios, it is too simplistic to say we’re in the adverse scenario or the baseline scenario. They are helpful illustrations. But we try to do a comprehensive analysis. And to repeat, clearly, energy prices are high but the strength of the pass-through to the rest of the economy remains uncertain.

We are seeing a mixed picture regarding growth. We have had some very good data in the second quarter. Also, the ECB has made it clear that the third quarter could be moderately good. But we have risks, of course, geopolitical risk, the energy shock. Now we have this marked increase in long-term yields propagating from the United States, with lots of European countries that are facing a pretty stark increase in yields. Would you single out the biggest risk that you are monitoring right now?

Your question has highlighted the range of factors. But, maybe behind everything, globally, the biggest issue is AI. AI has meant that world trade has been strong this year because it is leading to a lot of trade, including in semiconductor chips and other materials. And European firms are part of that. We are part of the AI supply chain to some extent. But as you know, the investment in AI in America also means that these firms are raising a lot of long-term debt.

And one factor behind the increase in the yields you mentioned is the investment surge in the United States. We spend a lot of time looking at broad financing conditions, including the importance of the long-term interest rate. And we do think it has a material effect on the economy and on inflation. So absolutely, we’ve always said part of our monetary policy evaluation is to take into account the full set of financial indicators, not just the policy rate that we set.

We know that the Federal Reserve has tasked five working groups with analysing a number of topics, including AI, the impact of AI on productivity and inflation especially. Does the ECB run any similar working groups or research specifically devoted to AI? And do you have any early results?

What I would say is that AI is driving a lot of the research here at the ECB, but also in the national central banks, including the Banca d’Italia. But because AI affects different parts of the economy, our labour market experts are looking at the effect of AI on employment. Our banking experts are looking at the effect of AI on the financial sector. Our investment experts are looking at it in terms of the investment dynamic. AI is so pervasive, it’s not a question of setting up a single task force. It’s many different groups at the ECB and across the Eurosystem working on this topic. A few months ago, I aggregated findings across all of these different work streams in a a speech entitled “AI and the euro area economy”, which reports on this very rich, very diverse work agenda.

On many occasions recently, the ECB has highlighted that the euro area economy is showing resilience, despite many risks and despite those headwinds coming from the energy shock. To what extent has this resilience provided a basis for gradually raising rates in the past few months?

The main driver of the interest rate decision has been the inflation implications of the energy shock. This year, in the spring, when the Middle East conflict erupted, there was a concern that we would see more damage to the economy. That turned out not to be visible over the summer, in part because there was a period when energy prices fell back, when the memorandum of understanding between Iran and the United States was agreed we saw an improvement in sentiment and some fall in energy prices. I think that helped the European economy over the summer.

But now with the new wave of price increases, new uncertainty about how long this conflict is going to last, this is one of the questions we will be exploring in the data. Will that support for the economy hold up? Let me also mention that on top of the energy shock, there’s been fiscal support this year. Let me highlight two factors.

One is the German programme on infrastructure and defence. Also remember that this is the final year of the Next Generation EU project. Public investment in a number of countries, including in Italy, is relatively strong this year. But the NGEU programme comes to an end this year. So when we look forward to how much fiscal policy will support the economy in 2027 and 2028, that will be different to 2026.

And then the other element is that we do see AI supporting the economy. We’re not seeing the very large investment boom we have in America, but we are seeing some pickup in investment.

The dominant issue in terms of interest rate policy so far has been the energy shock. But the interaction with the overall economy is important. The resilience of the economy means that so far we have not seen the materialisation of the downside risk to activity that could have happened.

Italy had a very strong inflation reading yesterday, at 4.1 per cent. And one of the things that politically came up is that Italy needs to ask the European Union for more budget flexibility. We have elections next year. How does the interplay work in this case with monetary policy? I mean, in which way would this change the equation for a central bank?

We recognise and we have said many times that people on low incomes do require, I think, fiscal support. We’ve emphasised that this support should be as targeted as possible because a broad-based fiscal support essentially adds to demand in the economy and that is not going to help inflation return to 2 per cent in a timely manner. I would say that those involved in the fiscal decisions across Europe should indeed do what is needed on a targeted basis to support those on low incomes. But having a very general, widespread fiscal expansion is not going to help.

One more risk that has been highlighted recently by the President, Christine Lagarde, was the global increase in long-term rates we are seeing and the possibility that this would slow growth and reduce pass-through by more than projected in the September exercise. So do the recent developments we’ve seen affect the ECB policy approach?

We have identified broader financial conditions, including long-term interest rates, as an important factor that enters the monetary policy decisions. We do think that an increase in long-term interest rates, especially if it’s driven by external, global factors more than European factors, slows down the European economy and, on its own, reduces the inflation rate. That will be in the mix, along with the inflation analysis and the risk analysis, in determining where we need to go with the policy rate. There is a clear role for that analysis.

For your readers it’s worth remembering that, over the last four years, since early 2022, there has been an increase in long-term interest rates. We have a new wave of increases now. But before the pandemic, there was a phase of “low for long”. People were convinced that interest rates would be low indefinitely. Now, from early 2022 onwards, there was a step up. But now there’s a further increase. And so it’s very important to look carefully at this through, for example, our bank lending survey, in our firm surveys especially, to see how this is affecting investment decisions, employment decisions and so on. So absolutely, we are very data-dependent and we will be studying this trend in the financial data very closely.

You mentioned budget policies by the governments. In Italy, we have a debate about wages. A lot of people are calling for an increase in wages. Containing wages was a way for Italy to regain a lot of competitiveness after the pandemic, if you look at the net foreign position of Italy. Would you like to say something about this debate that we’re having? Some people are saying that we need higher wages to grow more in Italy.

Wages and employment are an essential part of the overall economy. In our September projections, we do see wages in Italy running ahead of inflation in 2027 and in 2028. Even though this year workers are not being fully compensated for the inflation surge that we’re seeing right now, we do think the good performance of the Italian economy should allow wages to improve in terms of living standards next year and the year after.

So although right now I’m very mindful of the fact that a lot of people are not seeing their incomes go up as quickly as inflation because of the energy shock, the underlying strength of the Italian economy should allow some recovery next year and the year after. When any member country is having a debate about the overall trend in wages, it’s worth remembering that relative wages are an important part of competitiveness and that allowing wages to grow too quickly does not help in terms of attracting foreign investment, in terms of encouraging firms across the economy to recruit and so on. So there’s no simple answer to this. But in the end, Italy and Europe in general is a major importer of energy. Collectively, this very high energy price is a loss for the European economy. And unfortunately, it’s impossible to say we should fully protect all workers at all times from that. But again, to repeat, we do think it’s important for those on low incomes to be especially protected through targeted measures.

Italy has been very supportive of the euro traditionally. Less so in more recent years. We see in Italy an attitude that tends to criticise the ECB whenever there is an interest rate hike, regardless of the macroeconomic conditions. At the same time, people sometimes don’t really understand why it is so important to have a central bank that manages price stability. Would you like to say anything about this to the Italian people?

Inflation is very damaging. People really suffer if inflation gets too high. By the way, we also think there are problems if inflation runs too low compared to our 2 per cent target.

Before the pandemic, inflation was running below 2 per cent and we brought the interest rate to very low levels. In other words, when inflation is too low, the interest rate is going to be low.

When inflation is too high, the policy rate has to go up. Last time, we brought it up to 4 per cent. But then once the inflation dynamic improved, we cut rates from 4 per cent to 2 per cent fairly quickly.

Compared to the five years before the pandemic, 2014 to 2019, when the interest rates did not move very much, this period has meant a lot of movement in interest rates. But again, what we showed last time is we had to have a temporary campaign of raising rates, but then we cut them again. So I think the message for your readers is that interest rate policy is important to bring inflation back to our 2 per cent target.

If the inflation rate remained at 3 or 4 per cent, that would be very damaging for the Italian workers, Italian households. So we do what is necessary, and the main way to make sure inflation comes back to 2 per cent is by adjusting the interest rate. If we didn’t do it, inflation would be too high and if people expect inflation to be too high, the long-term rates we talked about would go up.

So, in the end, interest rate adjustments are a source of stability because they help maintain price stability around the 2 per cent target on this cyclical basis.

One last question, about market rates. We have seen, again, the impact of higher long-term rates in markets in the United States and European countries. This also affects, of course, debt funding. And this for countries like Italy, which has a rather important size in its debt, can be problematic. What would you say about this current phase, with markets being a little jittery about debt, for countries that are experiencing an increase in long-term yields in the markets?

What is important is that governments look beyond the immediate horizon. They need to decide their budgets for 2027, but when you think about the challenge over the next five or ten years, it’s very important to look at these long-term interest rates. It’s also very important to look at the growth of the economy. Governments have to be realistic about this. They have to incorporate the interest rates they will face in the coming years.

It really reinforces the importance of boosting the growth rate of the economy. All the reforms that Mario Draghi and Enrico Letta have recommended become even more important when you face a high interest rate environment.