Opinion
By Yiannos Stavrinides
The end of the pandemic ushered in rising prices and higher inflation. This forced the European Central Bank to react swiftly, adopting a restrictive monetary policy aimed at returning inflation to the 2% target. That objective has largely been achieved today, with the sole exception of energy prices, whose negative contribution masks what would otherwise be a 2.5% headline inflation rate. The anticipated convergence of inflation, services prices, and wages toward 2% will establish a stable price base going forward. After all, it should not escape our notice that, in the period ahead, and with the exception of energy, price stability is expected to prevail.
At the current juncture, the Eurozone faces a range of risks, foremost among them those stemming from the external environment. Specifically, there is the risk that global growth and international trade could be affected by a peak in geopolitical tensions.
The growth outlook remains subdued. The rise in prices following the end of the pandemic led to a decline in real wages and a contraction in consumption. At the same time, high energy costs put investment on hold and hurt businesses as interest rates soared. Compounding these pressures came changes in the terms under which international trade is conducted, weighing on growth in Europe’s export-oriented economies. In the end, the Eurozone managed, albeit narrowly, to grow, supported by historically low levels of unemployment.
The year 2026 will be decisive. With energy prices anchored and growth prospects revived, primarily due to Germany, the Eurozone is preparing to take a major step forward. Momentum is building, and interest rates are expected to remain stable in the medium term, injecting dynamism into construction activity. Thus, over the 2026–2027 period, the Eurozone is gearing up for a broad-based recovery. Yet the characteristics of this upswing remain modest, making bold structural reforms a one-way street in the effort to unleash competitiveness and strengthen the single European market, two conditions that would restore robust growth rates.
Forecasts for the coming years point to stable interest rates, sustained growth, and declining unemployment. The recession scenario has, for now, been avoided, although it came close during the days when the United States declared its so-called “liberation day” and imposed punitive tariffs on European products imported into the U.S. Still, the worst passed without the landscape ever truly changing or uncertainty fully dissipating.
Large-scale investments in artificial intelligence promise gains in productivity alongside lower costs. In this race, Europe has lagged behind, watching the fierce U.S.–China competition from the sidelines. For Europe, the only viable option is to reduce dependence on exports and focus on understanding and meeting domestic demand. Achieving this will require dynamism and investment in new technologies as minimum prerequisites for claiming a place in the new global order.
We are living through a critical year for the Eurozone. By concentrating on three top priorities, it will seek to tilt the balance in its favor by pursuing: (a) the strengthening of the single market for energy, telecommunications, and services; (b) the convergence of investment and deposit markets; and (c) the introduction of the digital euro. In roughly eleven months, we will know whether we are entitled to be optimistic.
