The Eurozone is Struggling: it’s Time the ECB Stepped up to the Plate

Many commentators, expert analysts, and economists are in agreement that the eurozone is in for a tough time in 2025, especially as its economic engine, which is driven by France and Germany, are both suffering from economic and political instability. The Euro is not in crisis, yet, but there is complacency with the walls of the ECB (European Central Bank). Monetary policy from the ECB has not been enough to ignite investment, whilst confidence and growth is suffering from economic imbalances between North and South and geopolitical divisions between East and West.

Looking back to 2012 when the Euro, was last in a severe crisis, the then ECB President Mario Draghi took what many commentators described as some breath-taking measures to save the Euro. At the time, he was given virtually carte blanche to do what he had to do, and the crisis engulfing the eurozone’s sovereign debt quickly passed. Recently, Draghi penned a report* to removing the structural barriers to growth, which sadly appears to be languishing in some policymakers’ desk draw. 

*The Mario Draghi Report in a Nutshell – The report was commissioned by the European Commission President Ursula von de Leyen, released in September 2024 is a blueprint for EU policy making. The report aims to address Europe’s economic challenges and competitiveness by proposing a new industrial strategy.

The current President of the ECB Christine Lagarde (aka Madame Euro), along with her policy makers, have been concentrating on inflation-busting monetary policies, having cut interest rates (four interest rates cut since June 2024) quicker than either the Federal Reserve and the Bank of England. Whilst this action is totally laudable, now, according to experts, is the time to bring on heavy duty policies with regard to growth. Recent data released shows that growth in the eurozone is expected to be under 1% in 2025. Furthermore, comparing GDP per capita between the United States and the eurozone since 2019, the eurozone is up 2.5% compared to the United States which is up 7.9%. 

Analysts suggest that President Lagarde is facing a make-or-break 2025, especially with the Euro under threat, France and Germany being “up the proverbial creek in a wire canoe without a paddle”, potential tariffs looming from a Trump2 presidency and China’s export market beginning to show signs of improvement. Most commentators are aware that the Euro blocs’ central bankers endlessly repeat monetary policy cannot do everything, but they need to take off the rose tinted glasses given the immediate needs of investment in climate, technology, and defence. 

Now is the time for President Lagarde to step up to the plate, and ensure the ECB fronts up and takes the leadership into a more active role. Recently, the Governor of the Banque de France, Francois Villeroy de Galhau, commented “that whilst price stability was the ECB’s primary objective, the bank must pay close attention to the risk of undershooting our inflation target”. He also made clear that the bank has responsibility outside of monetary policy such as defending open trade. Some heads of European corporates are beginning to point the finger at the ECB by criticising the ECB’s monetary policy and holding it responsible for the eurozone’s decline compared to the United States. 2025 should see President Lagarde come out with economic guns blazing, or we could see Europe descend from choppy waters to a financial maelstrom.