Interviewer (3:18)

But could politicians in Europe perhaps be emboldened by what they see across the Atlantic? This is something that Citigroup has warned about, that central bank independence could come under threat in Europe. Europe. If the move towards shorter dated bonds tempts politicians to push for lower interest rates. Is that a concern?

Martin Kazak (3:36)

Yes. The risks are there in my view, and they are very strong, especially if the policies become more short termistic, they are more populist and then you do not value the stability and delivery of the long term policy efficiency. This is certainly a worry. But the outcome from such a move would of course be negative for the European population. So that would be a very bad choice.

Interviewer (4:06)

Are there particular members of the euro area where you see that as being a risk?

Martin Kazak (4:10)

No, I would not comment on that. You know, things can happen in any country, you know, and the politics could move. But this has been the track record that we have been delivering in Europe, in my view, strengthens the case for dependents of the central bank because of it doing a good job so far. But as I mentioned, of course independence should come hand in hand together with accountability.

Bloomberg Host (4:42)

Okay, so accountability is sort of a necessary precursor. Look in terms of the interest rate path ahead, markets aren't pricing in any rate moves this year. Are you comfortable with that outlook?

Martin Kazak (4:53)

The modus operandi that we have had so far has been the appropriate one. So it's meeting by meeting data dependent open mind, seeing what the trends in the economy are and then reacting to that. And this has allowed us to be in a good place. The decisions of the past years have been appropriate ones and we are at the target spot on now as well, at 2% with services inflation as well, gradually coming down to 2%. But it does not mean that we can be relaxed. Uncertainty remains very high and that means that there are multiple of shocks that might hit us. And that in my view still very strongly supports the current modus operandi. Let's not give too much forward guidance in terms of the rates. What is important for the markets to understand is our reaction function and the markets understand it, in my view. So that is good news.

Interviewer (5:58)

Would something like an end to Russia's war in Ukraine be an issue that could shift your view and the Governing Council's view on interest rates in the future?

Martin Kazak (6:09)

That of course would be one of the elements because ending this negative shock would be beneficial. But of course one needs to understand what kind of peace is it going to be? Is it a good peace with economic growth, political certainty, or is it just a pause for another outbreak of a conflict? So the outcomes are likely to be very different. But this is only one of the shocks. There are many other shocks that are likely to shape the future parts of monetary policy. One of those is the valuations in the financial markets, the risks potentially to financial stability if there is some nonlinear adjustment. But of course, also in terms of, you know, macro policies, as such. For instance, what happens with the Chinese trade to European markets, what happens with our European competitors in our export markets, you know, that might weigh down on our economic activity, exert some deflationary pressure. So you can come up with so many various scenarios that visibility still remains relatively low. But the good thing is that we are by and large within the baseline scenario. And the current monetary policy is, in my view, very appropriate, but unfortunately still meeting.

Interviewer (7:34)

By meeting on the issue of Ukraine, the European Commission is going to unveil its plans for Ukraine financing later today as well, which, of course, is an issue of joint debt. Do the bolder threats on Greenland made by Donald Trump increase, do you think, the chances of more joint debt being issued in Europe for defense spending, I.

Martin Kazak (7:53)

Think for defense, joint debt is a necessity. It is simply more efficient to resolve defense issues. But let me come back a bit in terms of a policy mix and structural change. Monetary policy, if I may say so, has delivered, and it's somewhat boring now, which is good news. The action is not in monetary policy, but the action should be somewhere else, and that is structural policies in Europe. We somewhat, in my view, spend too much time in terms of thinking, you know, what could be the next blow, next outburst of volatility that we will need to take care of. But I would say that, you know, the risks are so many, they could hit all across the board. And the key choice and strategy for Europe would be to make our economy stronger overall, to deliver on the increasing living standards, to continue increasing living standards for our population, to strengthen our democracies, and also to make European economy much, much stronger and more resilient in this multipolar, geopolitically volatile world. And the only thing to do it is to make our economy stronger. And these are all the structural reforms that have been discussed in the past. As for financial markets, of course, it is deepening of financial markets, single market, market in financial services that would be the first step that we would need to take. And there have been some moves on that, but still relatively timid. And sometimes the understanding, at least in my view is like, you know, there's always a question, why do we choose a lot of nothing rather than a bit from something? By moving into more single market environment, we would unlock the scale. We would make our financial markets more dynamic and able to finance our economies. And I would say that is the major move that we need. We need structural improvements to make our economies more dynamic. And this will support defense spending. This will support also geopolitical standing of Europe. And we would be pushed around much less. So it's all about the underlying fundamental strength of the economy. And monetary policy, by providing stability and being at the target, will help with that. But it's not the job of monetary policy to resolve productivity problems and single market problems.