Introduction to the ECB Annual Report 2025

It is with great honor that I present the European Central Bank’s (ECB) Annual Report for 2025 to this esteemed committee. This occasion holds special significance, as it marks the conclusion of my eight-year tenure as Vice-President at the ECB, a role I will be stepping away from at the end of this month. Today’s discussions are, therefore, particularly meaningful for me.

The Euro Area Economy in 2025

The year 2025 saw the euro area economy embark on a path of moderate, yet widespread recovery, despite prevailing global challenges. Economic growth accelerated to 1.4%, showcasing the inherent resilience of the eurozone.

This growth momentum was partly driven by robust export activities in the first quarter, which were influenced by anticipatory measures taken ahead of expected increases in U.S. tariffs. As this momentum began to wane, strong domestic demand emerged as a crucial stabilizing force, mitigating external challenges amid a backdrop of uncertainty. The labor market remained strong, while inflation continued to moderate, aided by recent reductions in interest rates.

Inflation Trends and Monetary Policy Decisions

In line with our monetary policy objectives, the disinflation process was successfully maintained throughout 2025, with average inflation within the euro area reaching 2.1%, closely aligning with the ECB’s target of 2.0% for the medium term. Positive progress in inflation trends and an optimistic outlook granted the Governing Council the leeway to further decrease the deposit facility rate by 100 basis points to a sustained 2.0% as of mid-2025. The gradual normalization of the Eurosystem’s balance sheet, initiated in 2022, also persisted.

The year culminated in the assessment of our monetary policy strategy, which reaffirmed our symmetrical inflation target of 2% and highlighted the necessity for a proactive approach when dealing with significant and prolonged deviations from this target. This evaluation stressed the importance of incorporating not just expected inflation and growth trajectories, but also surrounding uncertainties in our decision-making processes.

Challenges and Considerations Ahead

Despite promising developments, the current economic landscape remains fraught with uncertainties, significantly influenced by ongoing regional conflicts such as the situation in the Middle East and fluctuating energy markets. Consequently, the Governing Council opted to maintain interest rates during its last meeting, opting instead for a careful monitoring approach to future developments.

ECB Contributions to Growth and Resilience in 2025

Beyond monetary policy, 2025 was a year of significant strides towards bolstering the Economic and Monetary Union (EMU). Three key areas reflect the ECB’s ongoing commitment to this goal.

Firstly, the ECB made substantial progress on the future of payments and market infrastructures, advancing the digital euro project into its next phase, focusing on technical readiness, engaging with markets, and legislating, preparing for a pilot exercise in 2027 with potential issuance anticipated in 2029. Furthermore, we committed to developing a modern cash framework alongside a new series of euro banknotes, affirming our dedication to cash as a reliable payment option.

Secondly, enhancing the regulatory framework was pivotal in ensuring financial stability and effectively channeling capital into productive investments. Our contributions comprised strategic opinions, analytical work, and policy advisories, particularly relating to the European Commission’s efforts towards creating a savings and investments union. Looking forward, it remains vital to maintain ambitious goals for the Market Integration and Supervision package and towards finalizing the banking union.

Thirdly, the ECB undertook measures to simplify regulatory and reporting requirements, participating in a High-Level Task Force aimed at streamlining the European prudential regulatory landscape while ensuring that resilience remains uncompromised. The outcomes of this task force provided essential input for the Commission’s upcoming evaluation on banking sector competitiveness.

Conclusion and Future Directions

In conclusion, the journey throughout my term since 2018 has been marked by significant achievements coupled with complex challenges. Two focal observations have become apparent: the enduring strength and appeal of the Euro, illustrated through Bulgaria’s recent accession to the euro area and public support for the single currency reaching unparalleled heights; and the vital connection between the ECB and the European Parliament, exemplifying a partnership characterized by independence paired with accountability. I am optimistic that my successor, Boris Vujčić, will continue to nurture this fundamental relationship.

Regardless of future uncertainties, you can be assured of the ECB’s steadfast dedication to maintaining price and financial stability as the bedrock of Europe’s prosperity and resilience.