Isabel Schnabel: Interview with Die Zeit

- INTERVIEW
Interview with Die Zeit
Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Mark Schieritz and Kolja Rudzio on 19 June 2026
25 June 2026
There is now a ceasefire in the Middle East, and oil prices have fallen. What does this mean for the economy in Europe, and in Germany in particular?
This is good news for Europe and the global economy. The war has weighed on growth, and its end could now provide renewed momentum. At the ECB, our primary concern is, of course, the rise in inflation. In recent months, this rise has been driven largely by high energy prices, which have fallen sharply following the preliminary peace agreement.
Do you mean, for example, that prices at petrol stations have fallen? Does this mean that the worst of the inflation is behind us?
I wouldn’t say that. Energy prices have fallen, but they are still measurably higher than before the war. We are looking in particular at energy prices for deliveries in the coming years, and these remain elevated. Although the short-term situation now looks better than we had expected, the ceasefire is no reason for monetary policymakers to let their guard down.
Why are the medium-term energy prices you're talking about not falling more sharply?
There are many reasons for this. It is unclear how durable the peace agreement really is. It may also take months before shipping through the Strait of Hormuz and global supply chains return to normal. Transport could permanently remain more expensive, for example due to higher insurance premiums for the Gulf region. So we probably won’t be able to simply go back to the pre-war situation. Energy infrastructure has also been damaged. In addition, the strategic oil reserves that were depleted during the war will need to be replenished. In Europe, gas storage levels are fairly low and need to be refilled before the winter. All of this affects energy prices, and uncertainty remains high.
Does the future path of inflation depend solely on energy prices?
Not at all. The inflation data for May already show that the energy price shock has broadened. Inflation of non-energy goods and services has already increased, and this is likely at least partly a consequence of the war. The prices of goods that are directly affected by the blockade and by energy prices were the first to react – such as diesel, jet fuel and fertilisers. Surveys show that producers of other goods and services are also planning to pass on part of their sharply higher input costs to consumer prices. This raises the likelihood of second-round effects, in particular stronger wage growth as a result of rising inflation. So far, however, we have seen no evidence that wage growth is accelerating or that people are expecting higher inflation in the long run. But the memory of the high-inflation period is still fresh, so expectations may now respond more strongly to rising inflation.
Is it realistic that trade unions will be able to push through excessive wage demands in Germany and other European countries, given the current difficult economic situation?
The economy is relatively resilient despite the major energy price shock. According to our projections, growth hasn’t slowed as much as might have been expected. This is also thanks to the AI boom, which has overshadowed the Iran war and is boosting the global economy. At the same time, governments in many countries are spending money to shield their populations from the energy price shock. In Germany in particular, a lot of money is being invested in infrastructure and defence. In addition, the recent fall in oil prices may make it easier for companies to pass on past cost increases to consumers, as demand is likely to pick up again. All of this may fuel inflation over the medium term.
What about wages?
The effects on wages will only be visible much later, but in any case we can’t let it get to a point where prices and wages enter into a mutually reinforcing spiral.
You raised interest rates a week and a half ago. Then came the ceasefire. With hindsight, was that rate hike not premature? After all, it does weigh on the economy.
No, this rate decision was appropriate in all the scenarios we considered, including a milder scenario in which oil prices normalise rapidly. It was necessary to prevent elevated medium-term energy prices from causing second-round effects and even higher inflation. Economic growth also feeds into our deliberations. Without the hike, inflation would remain above our 2% target over the medium term. That would not be consistent with our price stability mandate. People have experienced in recent years how painful it is when inflation remains above target for an extended period.
Are you planning further interest rate hikes?
From today’s perspective, we will need to raise interest rates further in order to bring inflation back to our two percent target over the medium term. However, the extent and timing of further measures will depend on how the conflict, the economy and inflation evolve.
Many people are probably not clear about how exactly increasing interest rates leads to lower inflation. Could you explain that in simple terms?
In essence, it works as follows: the energy price shock has significantly increased firms’ costs. This is compounded by the fact that this is a global shock that spreads across the world through supply chains. Firms must now decide whether to absorb these costs, thereby reducing their profits, or whether to pass them on to their customers. That decision depends on how strong demand is. This is where monetary policy comes into play: by raising interest rates, we dampen demand. That leaves firms with less scope to increase prices.
To be more specific, if you raise interest rates such that some people can no longer afford to build a house, would that be the intended effect? Would there then be somewhat less demand for building materials, craftsmen and architects?
Interest rate increases dampen economic activity. However, the increase in policy rates so far – by 0.25 percentage points – has been modest, and rates are not yet restrictive. But even after the pandemic, when we raised rates by 4.5 percentage points, the economy proved resilient.
The German government is currently spending a great deal of money, including on infrastructure and defence. Doesn’t this create more demand? Isn’t the government stepping on the accelerator while you are hitting the brakes?
To the extent that the fiscal impulse is inflationary, we must counteract it through monetary policy. This is why we emphasise that fiscal measures in response to the energy price shock should meet certain conditions: they should be temporary, distort prices as little as possible, and target only people or firms that genuinely need support.
How would you assess the fuel rebate that is now set to expire?
So far, it has been temporary, but it is not particularly well targeted, and it is associated with some distortion of price incentives.
So it wasn’t a good measure?
It is not for me to assess the measures taken by the German government.
Let's turn to the economic situation. Germany is currently undertaking comprehensive reform efforts, which may also have implications for monetary policy. How do you view developments in Germany?
We welcomed the special fund for infrastructure and climate neutrality, as well as the exemption of defence spending from the debt brake. What matters now is that these measures are implemented efficiently and accompanied by reforms. With regard to the special fund, it is critical that the money actually flows into additional investments. Doubts have been raised in that respect, and it would be important to dispel them. At present, growth in Germany is primarily supported by the fiscal stimulus. But spending more money is not enough, reforms are needed, too. This is also important for Europe. Germany accounts for a large share of the euro area economy, yet the German economy has been stagnating since 2019. This is to a significant extent due to structural factors that are weighing on long-term growth.
Which factors do you have in mind?
First, demographics. As the labour force shrinks, potential growth declines, the shortage of skilled workers intensifies, and the burden on social security systems increases. The second problem is the decline in competitiveness. Energy prices play a role here, but another key factor is the intensifying competition from China, which is increasingly competing for market share in the high-technology sector. And then there is innovation, especially artificial intelligence. Europe must not miss this technological revolution. The government also has a role to play here, as this requires a well-functioning infrastructure, data centres, affordable energy, swift approval procedures and much more.
That’s quite a long list of problems.
I remain optimistic. Germany is still a powerful country with strong companies and talented people. The potential is there.
What needs to be done to realise that potential? Germany, and indeed Europe as a whole, is lagging behind the United States in terms of growth.
The policy prescriptions have been on the table at least since the Draghi report. I see three priorities for Europe: innovation, integration and sovereignty.
What exactly do you mean by those?
Innovation is the foundation of all productivity growth. We need better framework conditions for education and research, with targeted support for future-oriented areas such as quantum computing. But ideas must also be translated into commercial success. It must become easier for start-ups in Europe to scale, for example through the introduction of a "28th regime” as proposed by the European Commission, which envisages a unified European corporate framework. We need to reduce the proliferation of national regulations and harmonise rules that make life difficult for innovative firms. This strengthens integration and also helps to mobilise risk capital. And the third priority, sovereignty, relates to the many dependencies we have built up over past decades, which make us vulnerable to geopolitical shocks. These include defence, technology, energy, critical raw materials and also payment systems. The latter is one of the reasons for the introduction of the digital euro.
Since you mention Europe’s dependence on foreign technology: the US government has just decided that citizens and firms from other countries will not be allowed to access two of the latest AI models. How hard does this decision hit Europe in your view?
This is another wake-up call showing that we are dependent on other countries in key areas. A strategy is needed here. The solution is certainly not complete autarky. But we do need to consider what our own leverage could be, while at the same time building up our own technologies.
Let us round off by returning to the interest rate hikes. To what extent could higher interest rates become a problem for highly indebted countries in the euro area?
The sustainability of public finances is an important issue, but it is a political responsibility. We are guided by our mandate of price stability. The key factor for public sustainability is economic growth. A country with strong economic growth can also cope with higher interest rates.
So you're not worried? Even as Germany is now taking on more and more debt?
Germany’s debt level is not a cause for concern. What does concern me is the low growth potential. Without reforms, Germany's growth could fall towards zero, mainly because of demographics. This limits the scope for financing additional public spending or taking on more debt. I hope all policymakers are aware of that.
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