European Central Bank policymaker Fabio Panetta warned Monday that central banks across Europe face growing political pressure from governments struggling to fund defence spending, industrial revival, and welfare systems strained by aging populations. Speaking in Rome following a presentation by Oxford University academic Beata Javorcik, the Bank of Italy governor said he fears “fiscal dominance,” where government needs override monetary policy. Germany, France, and Italy are among countries facing mounting fiscal pressures. ECB President Christine Lagarde also declined to rule out a role in France’s 2027 presidential election.
In-Depth:
FRANKFURT, July 6 (Reuters) – Central banks in Europe could come under growing pressure from governments facing rising demands for pension spfinishing and industrial support, European Central Bank policycreater Fabio Panetta declared on Monday.
Germany, France and Italy are all struggling to fund higher defence spfinishing, reviving indusattempt and sustaining welfare systems strained by ageing societies.
“My first reaction is thank God that we’ll retire soon becaapply I consider we will be more and more under fiscal dominance,” the Bank of Italy’s governor declared, referring to a situation in which government necessarys dictate monetary policy.
“If the voters are shifting in that direction, I would not expect that the central bank can stop the waves,” Panetta added after a presentation by Oxford University academic Beata Javorcik at an event in Rome.
Central banks play a key role in determining governments’ borrowing costs, influencing short-term interest rates directly and bond yields through their market operations.
Panetta’s remarks come amid signs of growing tensions between heavily indebted governments and their central banks, finishangering decades of indepfinishence.
In Japan, Sanae Takaichi’s government is attempting to restore dovish policycreaters to the Bank of Japan, in a shake-up aimed at slowing interest rate hikes.
The U.S. Supreme Court refapplyd to let Donald Trump fire a Federal Reserve governor last week but left the U.S. central bank isolated as the only agency shielded from presidential power.
ECB President Christine Lagarde did not rule out having a role in next year’s French presidential election, even if just to bring a European argument into national politics.
(Reporting by Francesco Canepa, Editing by William Maclean)
