Weekly Update - ECB: no change despite early signs of divergence

The European Central Bank (ECB) kept its key rate unchanged at 2%, as it has since June 2025, and its communication suggests that no change is planned in the coming months. Yet early signs of divergence have recently emerged in speeches by members of the Governing Council, hinting at the beginning of a disagreement over the future direction of monetary policy. Differences in economic conditions and inflation across euro area countries could further widen these perceptions and positions over the course of 2026.

Euro area inflation stands at 1.7% year on year in January, very close to the 2% target after having peaked at over 10% three years earlier. Christine Lagarde describes the current stance as “well positioned.” But this average hides significant disparities: inflation exceeds 2% in Germany and Spain, compared with 1% in Italy and just 0.4% in France. These gaps reflect contrasting economic realities that may deepen in 2026.

In Germany, growth is expected to rebound, supported by the new chancellor’s fiscal “bazooka” and by the rise in the minimum wage, which could fuel renewed price pressures. Spain continues to benefit from NextGenerationEU funds and strong migration inflows, sustaining a solid recovery. Italy, by contrast, is experiencing more subdued growth, while France remains weakened by political instability weighing on household and business confidence. All these factors contribute to increasingly differentiated inflation dynamics. 

These divergences are visible in the positions taken by Governing Council members. Isabel Schnabel, a prominent Executive Board member, stated last December that she was “comfortable” with the idea of further tightening in 2026, ruling out any prospect of near term easing. A clearly hawkish stance that contrasts with that of François Villeroy de Galhau and most Council members, who favour a more cautious approach: keeping rates “at the current favourable level” until the data justify a shift.

Beyond technical debates, a political dimension is emerging: the succession of Christine Lagarde in November 2027. Firmer stances may also reflect a search for visibility and influence ahead of that deadline. In a context where markets remain highly sensitive to monetary policy signals, the ECB will need to ensure that internal diversity of views does not translate into heightened volatility.

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