The ECB Warned Europe of Prolonged Inflation Amid the Middle East Crisis

European Central Bank President Christine Lagarde warned that the consequences of the crisis in the Middle East could keep inflation high in Europe for a long time. She made the statement at a Eurogroup meeting in Nicosia, where finance ministers and central bank heads discussed the impact of the new energy shock on the EU economy.

According to Lagarde, even if the conflict de-escalates quickly, prices in Europe are unlikely to return to their previous level. She stressed that inflationary pressure could persist because of the delayed effects of the crisis.

According to the European Commission’s updated forecasts, inflation in the EU will reach 3.1% in 2026, while economic growth will slow to 1.1%. In the eurozone, GDP growth is expected to be 0.9%, while energy prices will remain about 20% above pre-crisis levels.

European Commissioner for Economy Valdis Dombrovskis said the conflict is already affecting growth, inflation and the public finances of EU countries. At the same time, finance ministers opposed large-scale economic support programmes, opting instead for targeted and temporary aid measures for households and businesses.

Eurogroup President Christos Pierrakakis stressed that Europe is still far from a recession scenario, but risks to the economy remain high, especially amid tensions around the Strait of Hormuz.

One of the topics of the meeting was also the situation in Cyprus, which is considered one of the EU countries most sensitive to the region’s energy and geopolitical shocks. Brussels, however, is not yet considering separate large-scale support measures for the republic, suggesting the use of existing EU funds, including RepowerEU and the Recovery and Resilience Facility.

The meeting also discussed Europe’s long-term challenges — rising housing costs, declining competitiveness and the introduction of the digital euro. The European Stability Mechanism warned that the EU continues to lag behind the US economy and needs stronger investment and innovation.