Lagarde says ECB must keep watching energy shock

Christine Lagarde said the European Central Bank’s main threat is the energy crisis linked to the conflict in the Middle East, in an interview published on 30 September 2026. She said the ECB’s priority remains price stability and that higher raw material costs are feeding through to prices and growth.

For traders and investors, the message is that the ECB is still looking closely at inflation pressure from energy, even after raising interest rates in June and September. Lagarde said a central bank cannot reopen the Strait of Hormuz or create new oil and gas reserves, but it can try to stop a supply shock from feeding through the economy for a long time.

Lagarde also said the European economic model has been shaken because three pillars have been affected: cheap energy from Russia, the Chinese market for exports and the US security umbrella. She said supply from Russia has been cut off, China is competing with Europeans in leading-edge markets and the US security umbrella has been cast into doubt, to say the least.

On France, Lagarde said political uncertainty and budget deficits weigh on investment and activity. She said the euro area is expected to grow by 0.9% this year, compared with 0.5% in France, and that debt close to 120% of GDP and not on course to be brought under control is a serious matter.

She said debt cancellation would be technically uncertain and financially very dangerous, adding that France needs to keep borrowing and that such a move would violate the European Treaties. She also said France needs a credible path, shared commitment and reforms, including simplification of the administrative and regulatory framework, labour market reform, action on pensions and deeper capital markets union at the European level.

Lagarde said she intends to serve the European public interest and that becoming a candidate in French politics would not be a good idea. She said she does not rule out leaving the ECB a few months before the end of her term in October 2027, but said she would still be there in 2027 if that happens.