Interview with Expansión

Interview with Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, conducted by Andrés Stumpf on 4 November 2025

11 November 2025

Might the European Central Bank lower interest rates further?

The current level is appropriate, but we will continue to be data-dependent and will decide one meeting at a time. At the last meeting we kept interest rates unchanged, as the data since the September meeting largely confirmed September’s assessment that inflation is converging towards our 2% target in the medium term, stabilising around that level by the end of the projection horizon.

Our monetary policy is in a good place. It’s true that the economic environment remains uncertain, so we cannot commit to a pre-determined interest rate path. What we need to do is to make sure that the rates are consistent with achieving our target, and so far they are.

Could that good place change for monetary policy if the December projections point to a level of inflation below 2% in 2028? It would be too low for the entire horizon.

I don’t want to pre-empt the December projections. We’ll have to wait and see what they indicate. For now, we’re projecting that inflation will stabilise at around 2% in the medium term. The risks of inflation turning out higher than expected are balanced with those of inflation being lower than expected. Our price stability objective is symmetric and we are equally concerned about upward and downward deviations of inflation from our target but, overall, what we are now seeing is that it will converge to our 2% target in the medium term.

What are those risks that you’re keeping a watchful eye on?

The risks of seeing stronger growth in prices include further fragmentation of global trade, which could disrupt supply chains and push import prices up; the increase in defence and infrastructure spending, which could lead to inflationary pressure; as well as extreme weather events, and the climate and nature crises more broadly, which could drive food prices higher.

Among the risks of lower inflation I would include the appreciation of the euro, which could reduce demand for euro area exports; and a re-routing to the euro area of products previously shipped to the United States.

The appreciation of the euro that you refer to has been sizeable and it could continue, with the Federal Reserve now cutting its rates.

We are dependent on data when setting our policy, not on the Fed. And we do not set a specific exchange rate target.

We do, of course, monitor the euro’s exchange rate against other currencies because it could affect inflation. However, its impact on inflation is not necessarily linear as it depends on the macroeconomic environment, the level of inflation and the size and nature of the exchange rate movement. Our models also show that the effect could take years to pass through fully, which means that any impact from the recent appreciation would need to be balanced against previous exchange rate movements.

What is your assessment of where the Spanish economy currently stands?

Growth in Spain is exceptionally good. It is now the fastest-growing of the large euro area economies thanks to factors such as immigration, a robust labour market, the resilience of exports and tourism, as well as low exposure to the United States and China. Spain is also a net energy exporter thanks to its leadership in renewables. The structural reforms adopted a decade ago strengthened its financial system and laid the foundations for growth.

Inflation in Spain is around 2.5%, with growth in services sector prices somewhat persistent owing to wage growth and high demand.

And what of the risks?

Spain is not without its challenges. The country has an insufficient housing supply, which has meant considerable increases in both property and rental prices. Moreover, GDP growth is not fully reflected in a per capita increase in GDP or in labour productivity.

Spain, like the rest of Europe, needs to continue investing to be more productive and competitive, addressing long-term challenges such as climate and energy crises, and the need to invest in defence and to improve in the areas of innovation and infrastructure.

For much of the year, Europe has faced different challenges and uncertainties. Where do we find ourselves currently?

The news has been relatively good recently. Some of the risks that we’ve been talking about have gradually diminished. The US-EU trade agreement and the ceasefire in the Middle East are clearly positive factors, along with progress made on the trade negotiations between the United States and China. Additional government spending on defence and infrastructure could also help boost growth.

However, there is still a lot of uncertainty and also downside risks to growth. For example, we could see a further deterioration in global trade relations, which could hinder economic activity. This could negatively affect supply chains, reduce exports, hit confidence and weigh on investment and consumption. Additionally, a deterioration in market sentiment could lead to tighter financial conditions, increase risk aversion and make firms and households less willing to invest and consume. And then, of course, there are ongoing geopolitical tensions, especially Russia’s unjustified war in Ukraine.

Can this defence spending that the EU has committed to become a real growth opportunity for the region?

Yes, it could enhance growth. It all depends on how investments are structured. Some investments, like spending on infrastructure, could have a larger positive effect on growth than others.

But defence spending should not be viewed purely as a growth strategy. For this, there are clearly more targeted investments and structural measures that could improve growth in Europe by increasing competitiveness and productivity.

The most obvious ones are to complete the banking union and the capital markets union, and to remove the barriers that remain in the Single Market.

How do you view the current robustness and profitability of the banking sector?

Europe’s banks are strong and healthy, with sound capital and liquidity levels. They have held up well even in an uncertain and exceptionally volatile economic setting. This shows the solidity of the regulatory and supervisory framework put in place after the great financial crisis. Remember, the crisis was not “great” in a positive sense: it was huge and devastating. Today, banks can play their part in the economy, both during good and bad times.

That said, there are still long-term challenges to transform current profitability into lasting resilience, particularly in the face of digitalisation, the climate and nature crises and geopolitical uncertainty.

Europe’s banks performed well in this year’s stress tests and have posted strong growth in non-interest income, enabling them to maintain solid profitability even if net interest margins narrow, with balance sheets supported by the strength of households and firms. In any event, we remain alert to the geopolitical, macroeconomic and climate and nature related risks and have asked that banks also take these into account.

Some banks take issue with the severity of the post-crisis regulation and capital requirements, which they consider excessive.

It’s possible that memories of the crisis may have faded somewhat over time. As a central bank, our task is to ensure price stability and, as supervisors, to ensure a safe and sound banking system. We are mindful of the threats that could emerge if these two public goods are not properly protected. In the end, it is up to society to assess the level of risk it wants its banking system to assume.

Banks are calling for simplification, but some fear that beneath this idea lies deregulation, which could undermine financial robustness.

Legislation is never perfect. It’s important to look at whether it can be simplified, provided the resilience of the banking system is preserved. But post-crisis international standards, such as Basel III, are the basis for maintaining stability in the financial system. Our bank lending survey indicates that capital constraints have not been a limiting factor for bank lending. Instead, the main constraints are driven chiefly by risk tolerance and perceptions, as well as competition.

Simplification should not mean deregulation. The priority should be implementing policies that promote growth and competitiveness, completing the banking and capital markets union, removing barriers to the deepening of the Single Market and facilitating private investment to meet long-term challenges, such as the green and digital transitions – not watering down the rules that keep our banks safe and sound.

As supervisors we are also working to improve our efficiency and effectiveness, with a shorter and more targeted Supervisory Review and Evaluation Process – or SREP – for setting capital requirements based on a bank’s risks, a multi-year approach to risks and simpler supervisory processes – for example, in the area of securitisations, the “fast-track” for significant risk transfers. We’re committed to simplifying wherever possible, without sacrificing resilience.

Moreover, the Governing Council has set up a High-Level Task Force, under the leadership of our Vice-President, Luis de Guindos, which will propose recommendations for prudential simplification by the end of the year.

There is now much doubt over the Basel standards. Should Europe implement them even though other regions do not?

After the global financial crisis we learned that we need a solid framework for international banks. Given the interconnectedness of the global banking system, it is important for all jurisdictions to implement Basel III fully.

And does that not threaten to leave European banks at a disadvantage, if other regions do not implement them?

Consistent implementation is essential to ensure that capital requirements adequately reflect risks and that banks have sufficient buffers if faced with future crises and uncertainties. An international level playing field is crucial, and the best way to achieve this is for everyone to implement Basel III.

Various banking mergers have recently been affected by political interference. Do you consider this a problem?

I won’t comment on specific mergers. Generally speaking, though, to some degree political debate on significant transactions is inevitable. But political matters should not reach a point where they jeopardise the principles of prudence and the Single Market. As far as we are concerned, the law is crystal clear: any such transactions are to be assessed on prudential criteria.

Mergers should be assessed by the competent authorities based on the applicable technical and legal criteria, and the ECB does so in its supervisory role. Ultimately, it assesses the prudential resilience of the merged banks based on a limited set of criteria set out in EU law.

Mergers – particularly cross-border mergers – can be beneficial in that they can be a means of creating more competitive, resilient and diversified banks, benefiting customers, the financial system and the economy as a whole.

Progress on European financial integration has lost momentum because there are still many obstacles in the way of cross-border mergers. This is why it is crucial to complete the banking union, including a European Deposit Insurance Scheme, and to eliminate barriers to the deepening of the Single Market.

Is Europe politically, socially and technically ready for pan-European banks?

From a financial and institutional standpoint, yes, it is. Two of the three pillars of the banking union are already in place and up and running. All that is needed now is the political will to eliminate the remaining obstacles. The critical barriers are not prudential; a deeper banking union and Single Market are technically possible.

From a social standpoint, sound and competitive banks help keep our financial system stable and our economy competitive, improving the supply of services to households and firms.

What will we see first, a completed banking union or truly transnational banks?

I believe that a deeper banking union would facilitate the creation of truly pan-European banks.

That said, cross-border mergers could also serve as a tool for the further integration of the European banking system. Under the right conditions, these operations could make the system more resilient to crises, help reduce costs and improve profitability and optimise liquidity management at the group level. They can also help banks to diversify, facilitating both access to financing in different markets and investment in digitalisation.

There seems to be less “green momentum” in Europe now, overshadowed by the focus on simplification and defence. But the ECB is pressing ahead and has just sanctioned ABANCA for inadequate climate and environmental risk management.

We are simply following up on the deadline set for the bank in 2023, when ABANCA received a binding supervisory decision, as we specified in our press release yesterday. This was part of a broader effort to get the banks we supervise to adequately manage their climate and environmental risks, adhering to a thorough escalation process. And we are happy to see that banks have made big strides in this area, which shows that our supervisory efforts have been effective in the vast majority of cases.

More generally, while we work to keep the banks we supervise safe and sound, this also helps make Europe more resilient and reduce our exposure to shocks.