Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at a lecture in memory of Walter Eucken

Freiburg, 2 October 2024

The euro area economy is stagnating. Over the past two years, real GDP has expanded, on average, by only 0.1% per quarter. Surveys among firms indicate that growth is likely to remain subdued during the second half of this year.

Weak growth reflects, to a large extent, the exceptional shocks that hit the euro area economy in recent years, most notably the pandemic and Russia’s invasion of Ukraine.^[1]

Another reason is the tightening of monetary policy. From late 2021 to the end of 2023, bank lending rates for house purchases by households increased from 1.3% to 4%, and those for corporate loans from 1.4% to 5.3%. Such levels had not been seen in more than a decade.

Dampening growth in aggregate demand was needed to restore price stability.

In 2021, when the euro area economy reopened in the pandemic and the economy’s supply capacity was still…