The European Central Bank held its key deposit rate at 2 percent for a fifth consecutive meeting on Thursday, as policymakers weighed fresh geopolitical shocks and a stronger euro that could complicate the inflation outlook for the eurozone. The ECB said that its updated assessment “reconfirms that inflation should stabilize at its 2 percent target in the medium term” and that the “economy remains resilient.” At the same time, the central bank warned that “the outlook is still uncertain, owing particularly to ongoing global trade policy uncertainty and geopolitical tensions.” Since the ECB last met in December, global risks have intensified. U.S. President Donald Trump threatened new tariffs — or worse — to secure control over Greenland and launched his most aggressive attack yet of the U.S. Federal Reserve, triggering a broad sell-off in the dollar. That pushed the euro briefly to its highest level since 2021, raising concerns among some ECB policymakers that currency strength could drag inflation further below the ECB’s 2 percent target. While data released early this week showed inflation sinking to 1.7 percent in January, the most recent ECB staff forecasts see it returning to target by 2028. A continued appreciation of the euro, however, risks pushing inflation below target more durably and may thus require ECB action, French central bank chief François Villeroy de Galhau has warned. The euro has eased from its $1.20 peak to around $1.1780 as of Thursday, tempering immediate concerns. But analysts said exchange-rate volatility is likely to remain elevated, with investors watching ECB President Christine Lagarde’s 2:45 p.m. CET press conference for clues on how policymakers are reassessing risks — and the outlook for rates.

BRUSSELS — EU countries shouldn’t be afraid of integrating at different speeds if that’s what it takes to gain crucial leverage on the world stage, Mario Draghi said Monday. “We must take the steps that are currently possible, with the partners who are actually willing, in the domains where progress can currently be made,” said the former European Central Bank president and ex-prime minister of Italy during a ceremony at the University of Leuven in Belgium, where he was awarded an honorary doctorate. “Power requires Europe to move from confederation to federation,” said Draghi, stressing that only in domains where EU countries have pooled their competences has the bloc gained clout on the global stage.  “Where Europe has federated, [such as] on trade, on competition, on the single market, on monetary policy, we are respected as a power and negotiate as one,” he said, citing trade agreements recently negotiated with India and Latin America. Draghi’s call comes as Europe struggles to keep pace with the U.S. and China, and is facing Russian aggression in Ukraine plus a transatlantic ally that no longer acknowledges the benefits of its historic European ties. “This is a future in which Europe risks becoming subordinated, divided and de-industrialized at once, and a Europe that cannot defend its interests will not preserve its values for longer,” Draghi warned. In the face of those challenges, areas of weakness are those where EU capitals continue to maintain a grip, such as defense, industrial policy or foreign affairs, Draghi said. In these, he added, “we are treated as a loose assembly of middle-sized states to be divided and dealt with accordingly.” The former top official praised the bloc’s recent stance on Greenland, where it decided to resist rather than accommodate threats coming from the U.S. “By standing together in the face of direct threat, Europeans discovered the solidarity that had previously seemed out of reach,” he said.  Draghi will take part in an informal gathering of European leaders next week aimed at discussing the direction for the bloc’s competitiveness, together with another former Italian prime minister, Enrico Letta. Both have laid out their economic visions in reports that form the building blocks of President Ursula von der Leyen’s second term atop the European Commission.

The European Central Bank has taken a big step toward integrating blockchain-style finance into the eurozone’s financial system, announcing that assets issued using distributed ledger technology (DLT) will be accepted as collateral in Eurosystem credit operations. Under the decision, marketable assets issued in central securities depositories (CSDs) that use DLT-based services will become eligible collateral from 30 March 2026, provided they meet existing rules. These include compliance with the CSD Regulation and availability for settlement through the ECB’s TARGET2-Securities (T2S) settlement system. The Bank said it will continue to align its collateral framework and collateral management practices to keep pace with technological change, while preserving the core principles of safety, efficiency and equal treatment across markets. It is therefore exploring “if, how and under what criteria” assets issued using DLT and not represented in eligible securities settlement systems could become eligible and be mobilized as Eurosystem collateral in the future. A staggered approach is planned, allowing subsets of DLT-based assets to be gradually admitted as market conditions and the legal and regulatory framework evolve. The review will consider developments in EU financial law, including the CSD Regulation, the DLT Pilot Regime, Market in Crypto Assets Regulation and national securities laws, the ECB said. “These decisions reflect the Eurosystem’s continued commitment to encouraging innovation and technological progress, thus enhancing market efficiency, and contributing to the integration of European capital markets,” the statement said.

FRANKFURT — No one saw this coming. Eurozone finance ministers on Monday picked Croatia’s central bank governor, Boris Vujčić, as the European Central Bank’s next vice president — defying all expectations and the European Parliament’s calls for someone else. Ministers chose Vujčić over his Finnish counterpart Olli Rehn, the favorite to win, in the third and final round of voting after seeing off other heavyweight contenders in Portugal’s Mário Centeno and Latvia’s Mārtiņš Kazāks — the Parliament’s preferred picks for the job. Estonia’s Madis Müller and Lithuania’s Rimantas Šadžius lost out in the first round. At a time when the U.S. administration is putting extreme pressure on the Federal Reserve to lower interest rates, the choice of Vujčić — a technocrat with no obvious partisan backing — is a strong signal of the EU’s desire to keep the ECB independent of direct political influence. Barring any last-minute surprises, EU leaders will formally present Vujčić to succeed incumbent Vice President Luis de Guindos when the Spaniard ends his eight-year term on May 31. “Crazy,” was all one diplomat could muster after the vote. Others were more understanding. “He is the most senior central banker of them all,” a second said on the condition of anonymity. Vujčić needed 16 votes from ministers who represent 65 percent of the eurozone’s population, meaning he had the support of the euroclub’s largest members to clinch victory. Germany, France and Spain will all have been thinking strategically ahead of Monday’s vote, which kicks off a game of musical chairs for a place at the ECB’s coveted six-person Executive Board over the next two years. The vice presidency is the first of four board vacancies, including the presidency, that will come up in that time. All are important positions for the eurozone’s biggest economic powerhouses. By tapping Vujčić for the no. 2 job, capitals have kept the playing field wide open — especially when it comes to finding a successor for ECB President Christine Lagarde once her term ends on Oct. 31, 2027. Vujčić now faces an awkward hearing in Parliament, whose non-binding preference for the post was completely ignored by finance ministers. The 61-year-old will need to bring Parliament onside to avoid MEPs voting against his victory in a symbolic, but politically embarrassing, ballot — a similar fate to when Luxembourg’s governor, Yves Mersch, joined the ECB’s highest echelon in 2012. DARK HORSE Vujčić has vast experience as a central banker, having led the Croatian National Bank since 2012, and is highly regarded among fellow rate-setters. But his appointment will still come as a massive surprise to ECB watchers who have long bet on Rehn. Rehn’s dual experience in Brussels politics and monetary policy had widely been seen as giving him an edge over his five rivals. Croatia’s chances were seen as slim from the outset, as it only joined the eurozone in 2023, placing it toward the back of the queue for a seat at the Executive Board. None of the three Baltic states, which adopted the euro roughly a decade earlier than Croatia, have yet had a representative serve on the Board. While generally considered a moderate hawk, Vujčić defies the usual northern-hawk-versus-southern-dove classification that has historically dominated debates when politicians haggle over coveted positions at the ECB. His appointment is thus unlikely to change the probability of either a northern heavyweight such as Germany or the Netherlands, or a southern contender such as Spain, securing the presidency. Current front-runners for the top job include former Dutch central bank chief Klaas Knot and Bank for International Settlements head Pablo Hernández de Cos. But in European politics, two years is an eternity. Lagarde herself only emerged as a serious candidate late in the process to name a successor for Mario Draghi, showing how fast the ECB’s leadership race can turn.

Global central banks rallied behind Federal Reserve Chair Jerome Powell on Tuesday, pushing back against a perceived political attack on the independence of the world’s most important financial institution. “We stand in full solidarity with the Federal Reserve System and its Chair Jerome H. Powell,” the officials said in a joint statement. “The independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve. It is therefore critical to preserve that independence, with full respect for the rule of law and democratic accountability.” The statement was signed by European Central Bank President Christine Lagarde on behalf of the ECB’s Governing Council, by Bank of England Governor Andrew Bailey as well as the heads of the Swiss, Swedish, Danish, Australian, Canadian, South Korean and Brazilian central banks. Pablo Hernández de Cos, general manager of the Bank for International Settlements and François Villeroy de Galhau, chair of the Board of Directors of the Bank for International Settlements, also signed the statement. Over the weekend, Powell disclosed that the Fed had been served with grand jury subpoenas by the Department of Justice, raising the threat of a criminal indictment tied to his congressional testimony on the ongoing renovation of the Fed’s Washington headquarters. In what amounted to a dramatic escalation in the standoff between the White House and the central bank, Powell used an unusually direct video message to argue that the legal action is politically motivated and part of a campaign of “intimidation,” designed to push the Fed into cutting interest rates more aggressively. “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president,” Powell said in language rare in its starkness for a serving Fed chair. Trump, a longtime critic who has piled personal insults on Powell since his reelection both through ad hoc comments and through his social media feed, denied any role in the investigation. Speaking to NBC News on Sunday, Trump said he was unaware of the probe but added that Powell is “certainly not very good at the Fed, and he’s not very good at building buildings.” The joint statement on Tuesday took a different view. “Chair Powell has served with integrity, focused on his mandate and an unwavering commitment to the public interest,” it said. “To us, he is a respected colleague who is held in the highest regard by all who have worked with him.” Expressions of support for Powell from around the world had already begun on Monday, with Bundesbank President Joachim Nagel telling POLITICO that: “The independence of central banks is a prerequisite for price stability and a great public good. Against this background, the recent developments in the U.S. regarding the Fed chairman are cause for concern.” Bank of France Governor Villeroy de Galhau, meanwhile, had told a  new year event at the ACPR regulator that Powell was “a model of integrity and commitment to the public interest.” POLITICO reported on Monday that the decision to subpoena the Fed had also raised concern among various White House officials, who are concerned that it may trigger volatility in financial markets and complicate efforts to keep the economy on track in an election year. Senior Republican Party lawmakers have also spoken out against the move.

Croatia, Estonia, Finland, Latvia, Lithuania and Portugal will face off for the European Central Bank’s No. 2 job, according to a statement from the Council of the EU. The crowded race for the vice presidency kickstarts a wider battle for a seat on the ECB’s coveted six-person executive board, the eurozone’s most powerful forum for economic and monetary policy. Four of the seats, including the presidency itself, will become vacant over the next two years. Competition will be fierce, as the eurozone’s largest economies will seek to maintain their influence on the board, leaving smaller countries with fewer seats to fight over. Eurozone finance ministers are set to pick the winner behind closed doors in a secret ballot when they meet in Brussels for this month’s Eurogroup meeting on Jan. 19. The winner will need at least 16 votes from the 21 ministers, representing around 65 percent of the eurozone’s population. Eurozone leaders formally propose the candidate to succeed the outgoing vice president, Luis de Guindos, whose eight-year term ends on May 31. The European Parliament and the ECB are entitled to an opinion about the final pick. Northern European applicants make up the bulk of the contenders, with Finland’s central banker, Olli Rehn, facing competition from Baltic neighbors. These include his central banking peers, Estonia’s Madis Müller and Latvia’s Mārtiņš Kazāks. Lithuania’s former finance minister, Rimantas Šadžius, completes the Baltic round-up. The other two applicants come from Southern Europe: Portugal’s ex-Eurogroup president, Mário Centeno, and the Croatian central bank governor, Boris Vujčić. The candidates are tentatively scheduled to face questions from MEPs behind closed doors before finance ministers meet on Jan. 19.

The Bank of England is set to cut interest rates on Thursday, after lower-than-expected inflation figures and signs of a weakening jobs market. Headline inflation slowed to 3.2 percent in November, from 3.6 in October, the Office for National Statistics said on Wednesday. That was the lowest since March and a much clearer drop than predicted by analysts, who had forecast a rate of 3.5 percent. “A cut tomorrow should be a no-brainer, with another to follow in February,” Peel Hunt chief economist Kallum Pickering said via social media, pointing to “No growth since summer, a labor market that is rapidly cooling, and a big downside surprise to inflation across the board in November.” The news comes only a day after labor market data from the ONS showed the unemployment rate rising to its highest level in over four years in October. The economy has struggled for growth in the second half of this year, after a sugar rush in the first quarter in which exporters rushed to get their goods to the U.S. before President Donald Trump could impose trade tariffs. The hangover from that — and the lingering uncertainty over the global economic outlook caused by Trump’s trade policy — has been severe. But at the same time, an unwelcome rise in inflation has stopped the Bank of England from cutting interest rates more quickly to support the economy. A raft of hikes in government- controlled prices such as energy bills and rail fares meant that inflation was rising for much of the year, leading it to peak at 3.8 percent in September. That was also partly due to companies passing on increases in labor costs due to a 6.7 percent hike in the National Living Wage and an increase in employers’ National Insurance contributions. Panmure Liberum chief economist Simon French said the wide range of goods and services now showing softening price trends showed that demand is now so weak that companies are having to absorb those price increases themselves instead. The government will be particularly relieved to have seen politically sensitive food prices, which have been a constant bugbear for the last couple of years, making the biggest contribution to the slowdown in inflation in November. Prices for clothing and footwear and for discretionary services such as restaurants and hotels also fell slightly. “As Christmas gifts go, this is a most welcome one,” said Danni Hewson, head of financial analysis at AJ Bell. “It’s the time of year when people put a few more things in their supermarket trolley, so news that food and alcohol inflation has fallen will be a boon for cash-strapped families.” The Bank has consistently said that inflation would fall once those factors passed out of the annual calculations, given that the underlying weakness of the economy. However, with the worst bout of inflation in half a century still fresh in everyone’s minds, it has been forced to keep the pace of policy easing “gradual and cautious”. Peel Hunt’s Pickering said that the scale of the slowdown could be enough to have some members of the Monetary Policy Committee voting for a half-point cut in the Bank Rate to 3.5 percent on Thursday. However, the consensus remains for a quarter-point cut to 3.75 percent. The pound still fell over half a cent against the dollar in response to the numbers, as traders penciled in more scope for easing next year, while the government’s borrowing costs in the bond market also fell.

The European Parliament could have an early say in the race for the European Central Bank vice presidency, a win for lawmakers after years of pushing for more influence over the EU’s top appointments. Eurozone finance ministers will begin the process of selecting a successor to Luis de Guindos on Thursday, according to a draft timeline seen by POLITICO and an EU diplomat who separately confirmed the document’s content. The deadline for submitting candidates will be in early January, although an exact date is still to be agreed.  According to the document, members of the Economic and Monetary Affairs Committee will have the right to hold in-camera hearings with all the candidates in January before the Eurogroup formally proposes a name to the European Council for appointment. This would mark a break with the past, when MEPs only got involved in the process after ministers had already had their say. Involving the Parliament at an earlier stage could influence the selection process, for example by giving it the chance to press for adequate gender balance in the list of candidates. This had been one of the Parliament’s demands in its latest annual report on the ECB’s activities. “The Parliament will play a stronger role this time,” the diplomat told POLITICO. So far, only Greece is considering proposing a woman for the vice president slot: Christina Papaconstantinou, who is currently deputy governor at the C. Finland, Latvia, Croatia and Portugal are all set to propose male candidates. The candidate picked by ministers will return to lawmakers for an official hearing, which should take place between March and April, according to the document. MEPs have limited power over the final appointment, but they will issue a nonbinding opinion, which is then adopted through a plenary vote. The new vice president will be formally appointed by the European Council in May, before taking office on June 1. So far, only Greece is considering proposing a woman for the vice president slot. | Aris Messinis/Getty Images The vice president’s position is the first of four to come up for rotation at the ECB’s Executive Board over the next two years. It wasn’t immediately clear if the other three appointments — including the one for a new president — will give the lawmakers the same degree of influence. CORRECTION: This article was updated on Dec. 9 to correct the spelling of the surname of the deputy governor of the Bank of Greece.

European Central Bank officials are growing increasingly jittery as Kevin Hassett — a close ally of President Donald Trump with very little central bank experience — emerges as the frontrunner to lead the U.S. Federal Reserve. A report last week by Bloomberg described Hassett, whom Trump picked at the start of the year to head the White House National Economic Council, as the “emerging front-runner” to replace current Fed Chair Jerome Powell.  Hassett’s rise has set off alarm bells in Frankfurt. European officials fear Hassett, under pressure from his boss in the White House, could push the Fed into cutting interest rates far more aggressively than Powell — even though that might risk unleashing another wave of inflation that could ripple out across the world. “If markets obtain a firm belief that the new [Fed chair] is subject to fiscal or any other dominance at the expense of the inflation target, there will be capital flight from the U.S. and an erosion of the value of the dollar with serious consequences worldwide — including higher inflation,” one ECB official said.  Like others interviewed for this story, the official spoke on condition of anonymity to discuss internal deliberations. “There is a possibility that the U.S. will have some inflationary bias … because of the political involvement,” a second ECB official warned. The Bloomberg report came just before Thanksgiving, after Treasury Secretary Scott Bessent had whittled down a long roster of candidates into a shorter list. Later during the holiday weekend, aboard Air Force One, Trump told reporters that “I know who I’m gonna pick,” but he told a cabinet meeting on Tuesday that he wouldn’t announce his decision until early in the new year.  Prediction markets such as Polymarket have made Hassett the odds-on favorite since then.  “For Trump, Hassett would be the best choice,” a third ECB official agreed, noting the candidate’s political proximity to the White House.  PRESSURE CAMPAIGN Trump has repeatedly attacked the Fed since returning to office in January, blasting Powell — whom he appointed as Chair during his first term — as a “numbskull” and a “major loser” for not cutting interest rates more quickly. The Fed withstood the pressure until September, when signs of a slowdown in the labor market emerged. It cut rates again in October, but Powell upset those expecting more easing soon by warning that another cut in December is by no means “a done deal.” Since then, several of his colleagues on the Federal Open Markets Committee have expressed reluctance to cut any further in December, pointing to an inflation rate stuck above the 2 percent target. More recently, as Jerome Powell has come under fire from the White House, European colleagues have rushed to defend him. Usually, when the labor market weakens, so does inflation, but that hasn’t happened this time. At both of his last two press conferences, Powell noted that the Fed’s dual mandate of keeping prices stable while pursuing full employment were currently “in tension” with each other.  Hassett has presented a very different view, telling CNBC in November that “inflation has come way down” from the 5 percent that it averaged during Joe Biden’s presidency andthat “the trajectory is really, really, really good if you look at it.” That’s despite U.S. headline inflation actually rising in four of the last five months.  MY GOOD FRIEND BEN That is why many in Frankfurt see alternative candidates — including the dovish but experienced Fed Governor Christopher Waller — as far safer choices. Also still in the running, according to various sources, are former Fed Governor Kevin Warsh, BlackRock fixed-income chief Rick Rieder, and sitting Governor Michelle Bowman. For decades, relations between the Fed and the ECB have been collegial and cooperative. Members of the small, globally connected circle of central bankers have long seen themselves as a kind of fraternity. During the height of the 2008 financial crisis, then-ECB President Jean-Claude Trichet liked to emphasize that closeness by repeatedly referring to Fed Chair Ben Bernanke as “my good friend Ben.” More recently, as Powell has come under fire from the White House, European colleagues have rushed to defend him. Lagarde told a Washington Post event in April that “I have … enormous respect for Chair Powell, and I know that he’s doing exactly what’s expected of him to serve the American people.”  Deutsche Bundesbank President Joachim Nagel echoed such comments more recently. Outside the eurozone, Bank of England Governor Andrew Bailey — another central banker anxious about the risk of financial volatility — called Powell “a man of the utmost integrity.” With Powell’s departure looming, ECB officials increasingly fear that this long-standing, trust-based relationship may be nearing its end, a fourth official told POLITICO. These concerns have already begun to influence the ECB’s strategic considerations in other areas, including liquidity policies and its own leadership succession. The ECB declined to comment. (Additional reporting by Ben Munster)

SOFIA — The euro is more than just a currency: it’s a geopolitical insurance policy in a fragmenting world. That was the message the EU’s most senior economic leaders sent to a skeptical Bulgarian public during a pro-euro charm offensive in Sofia on Tuesday. Bulgaria is due to adopt the euro on Jan. 1, 2026, but only about half the population supports joining the single currency. Fears about inflation and centralization of power in Brussels and Frankfurt — exacerbated by alleged Russian disinformation campaigns — have turned many against the project. In a push to ease these concerns, Economy Commissioner Valdis Dombrovskis and European Central Bank President Christine Lagarde each stressed the geopolitical benefits of joining the euro. “Bulgaria is joining the euro … at a point when there is more volatility, at a time when we have more shocks, one after the other, compounded, and at a time where the global order, as we have known it, is more fragmented, and when friends are probably fewer,” said Lagarde, adding: “It’s important to close ranks and to be together.” Lagarde said that during the financial crisis, the single currency had proved a defensive shield against shocks and depreciation. Dombrovkis said that, in itself, the adoption of the euro could help Bulgaria compensate for growing geopolitical risks in investors’ eyes. “In Baltic countries, despite being geopolitically exposed, the borrowing costs were lower than in Poland, and to a large extent investors assessed that [the euro] is a stabilizing factor,” he said. Bulgaria’s accession to the euro has been planned for more than a decade, but as the date got nearer, it has spawned conspiracy theories and populist politics, alongside more justified concerns about the currency changeover. Investigative reports have identified Russian-funded social media campaigns to undermine support for the euro. Last April, the far-right party Revival, which arranged several anti-euro protests over the last year, signed a deal with Vladimir Putin’s Russia United. The percentage of Bulgarians who support the euro has slightly increased in the last few months. | Nikolay Doychinov/Getty Images Asked about Russian influence on public opinion about the euro, Dombrovskis said: “It is not a secret that Russia is waging a hybrid war against Europe and European member states. It is provocation, acts of sabotage, violation of European airspace, meddling in political processes in the European Union, also in other countries, and it is spreading disinformation.” The percentage of Bulgarians who support the euro has slightly increased in the last few months, reaching 51 percent according to a survey cited by Finance Minister Temenuzhka Petkova — up from 45 percent earlier in the year. European Stability Mechanism chief Pierre Gramegna highlighted risks coming from Washington’s new approach to monetary policy and cryptocurrencies: “The U.S. administration is changing its position on so many topics, including on finance and currency, that being part of a large bloc is a huge advantage,” he said, adding people in Bulgaria are not fully conscious of this. “The risk entailed in the digital currencies can be faced better if we are in the euro area,” he said.