It is a great pleasure to be here today to celebrate Klaas’s time as President of De Nederlandsche Bank and Chair of the Financial Stability Board. But more than that, to recognise Klaas as a very good friend and colleague. Klaas’s time as Governor covered most of the period since the financial crisis. But his career goes further back, both at the DNB and the Ministry of Finance here in the Netherlands. He has seen it all, and has been at the heart of rebuilding financial stability. It is I think therefore appropriate to concentrate on the theme of financial stability. I am going to focus on a number of key questions. What has been achieved in the time since the crisis? What appears to be the challenge today to these achievements? And where do we go from here? There have been times in recent years when we might have treated these questions as matters of more academic speculation, that’s not so today. They are real questions up for debate and challenge. I know that Klaas will want to be part of answering them. And Klaas, you need no encouragement from us, please do get stuck in, with your trademark elegance and force, the hallmark of Dutch football that you are such a keen supporter of. What has been achieved in the field of financial stability since the financial crisis? Answer – a lot. Yes, today’s world is a highly uncertain and unpredictable place sadly. We have experienced very large shocks – a pandemic, the longest war in Europe since 1945, I could go on. But we have come through, so far at least, without a crisis of financial stability of the sort that has been seen in the past. Likewise, we have not had a major and lasting recession during these recent shocks. But, this all reminds us that bad things happen in the world, and they can affect financial stability, this is always possible. That said, we start with a financial system that is much more resilient, which is a much better place to be. We have a banking system that after a long-haul post-crisis appears to be sustainably earning its cost of capital in terms of returns. This is reflected in market pricing, with market price-to-book value more consistently above unity. Another lens through which to look at this point is to examine arrears and loan losses across the recent period of economic shocks. The evidence points to resilience here – such losses have been low by historical standards. Of course, this benefits banks and their shareholders, but it also helps consumers as customers and economies generally. Customers get better outcomes and particularly when they avoid having their business closed, losing their job, or having their home repossessed. The benefits of financial stability are real and tangible. Yes, but they may not be perceived as such. One of the challenges of financial stability is that it is a state of being in which success comes when things don’t happen, and don’t go wrong. It is therefore susceptible to the problem of “out of sight, out of mind”, in other words under-appreciated.

It’s always a great pleasure to visit Scotland, and a particular pleasure to be at the Investment Summit. I should start by explaining that the Bank of England, despite its name, is by no means solely an English institution. We serve the people of the United Kingdom, right across our country. To that end we have twelve regional agencies covering the whole country. These agents are our eyes and ears on the economy, talking every day to a large number of business contacts about their experiences and expectations. Our Agent in Scotland, Will Dowson is here today, and if you want a real read on the Scottish economy I highly recommend a conversation with Will. I undertake regular visits with all of the Agents, and I can let you into a secret, it’s the most fun part of my job. I love spending time with businesses, talking to people from Peterhead to Penzance, and getting their up to date assessment is invaluable assistance in our role of setting interest rates. Those who have heard me speak before will know I am a keen historian, so it wouldn’t do to come all this way without reflecting on the history of the Bank as it pertains to Scotland. In fact, the scheme that led to the founding of the Bank in the late 17 century was actually the idea of a Scotsman, William Paterson. He was a great ideas man. Some of his later schemes were, admittedly, less successful, and a particular adventure did a lot of damage to the Scottish economy, but he had at least one very good idea. You might regard it as ironic that the son of a Dumfrieshire farmer thought up the Bank of England – all the more so since it was an Englishman, John Holland, who is credited with establishing the Bank of Scotland! I won’t bore you with the long story of why our banknotes don’t circulate as the main currency in Scotland – suffice to say, Scotland is rightly very proud of its banknotes, and we are happy to support that. The other two stories I’d like to mention concern recent visits I have made to Scotland, and go some way to illustrate the great investment opportunities here. Earlier this year I was in Glasgow and met with a group of start-ups connected with developing economic capacity in Space – outer Space that is. Scotland has an emerging specialism in this field. We met in the historical surroundings of the Boardroom of one of the former Upper Clyde Shipbuilders, its new occupants now concerned with a somewhat different kind of vessel to the naval ships that are still proudly built in the area. Progress is really in the air there, as once again we harness the miracle of space flight to spur scientific discovery. I learned, for instance, how much faster you can grow medical crystals in zero gravity, and about quantum computing in space, to describe just two of the start-ups I was lucky enough to meet. On my previous visit in 2023 I ventured to the North East of Scotland and Orkney, visiting firms connected with the energy sector. Energy has long been – if you’ll excuse the pun – part of the bedrock of Scottish industry....

This year has marked forty years since I first joined the Bank of England. Before that, I was an economic historian. I am going to draw on some of that past in my remarks today. In recent years the nature of the economic shocks we face has changed. The natural territory of monetary policy is to respond to shocks to aggregate demand and its components, set against a backdrop of a relatively stable and slow-moving supply side of the economy. That picture has changed, and we have seen and are seeing, large and faster moving supply shocks. We don’t have to look far for examples – Covid, Russia’s illegal invasion of Ukraine, tariff increases etc . Such events prompt challenging questions on economic consequences. What impact has Covid had on longer-run labour supply? What impact are tariffs having on price setting? There are also deeper supply shocks at work affecting the structural parameters of economies. Two are important to highlight. First, the negative labour supply impact of long-run population ageing. Second, the lower rate of productivity growth in many economies, the UK included, over the last fifteen years. In the UK, over that period the potential growth rate of the economy has declined from around 2½% per annum in the preceding twenty years to around 1½% since then. The largest contribution to that decline has come from productivity growth. It’s important to understand the impact of this change. For monetary policy it affects the speed limit at which the economy can operate. Of course, the challenge for much of the time has not been to restrain demand growth to that lower speed limit but rather the opposite. Let me add another illustration here, using the UK economy. This is an admittedly naïve counterfactual, I make no pretence of sophistication. Imagine that throughout the last fifteen years the economy had run at a 2½% speed limit throughout (i.e. supply and demand had both grown at 2½% p.a.). Holding public borrowing fixed, the debt to GDP ratio would now be 82% instead of 96%, and the official projection for 2029-30 would be 79% not 96%. It’s a very simple point really. If the denominator grows more slowly, economic policymaking gets more difficult. I’m going to revert to being an economic historian for a short while. Why? Well, because of four big lessons that we can take from history. First, economic historians would be surprised at the lesser attention paid to the supply side, for the reason that over time longer-run growth has come from the supply side. There was a long debate on whether it was more a story of supply or demand in the British Industrial Revolution, and the answer was pretty clearly resolved – supply did it . So we should pay attention to the supply side. Second, supply side growth has not been sustained over time. It comes in waves, with the real dial-moving changes being caused by so-called General Purpose Technology innovations – starting with the steam engine, moving through electricity, and eventually on to the internet....

Can I start by extending my welcome to all participants in the Bellagio Group, and congratulate the organisers on a timely and highly relevant choice of subject. My role today is some scene setting. I am going to cover three points. First, a reminder of the benefits of open economies and why they need to be supported by an international rules-based system which gives important roles to multilateral institutions. Second, I will set out some of the conditions that help to make this system work. And, finally I will highlight a number of the specific big challenges we face today and must take on. The benefits of trade and openness in terms of specialisation and larger markets are very well known. So, too, is the need to have rules of the game and some form of commitment and co-ordination device to put these rules into effect and protect legitimate national interests. This may sound reasonable enough, but defining exactly such national interests has been hard, not least because their precise nature and force can change over time. Bretton Woods was a defining moment in terms of institution creation, but it was, of course, context specific – in the context of beggar my neighbour policies in the inter-war period when the institutional fabric of the gold standard broke down, and then a global war. The effectiveness of the international rules-based system has a number of key general dependencies. First, it depends on domestic national support and license – it cannot operate in isolation. The goals of international co-operation must sit alongside domestic national policy objectives, but there also must be scope for the international goals to shape those domestic objectives. It cannot be a one-way street and this principle must apply to all participants. It follows that there is a natural tension between economic globalisation and domestic objectives and economic welfare. We cannot assume this away. Take the case of global imbalances. Our shared objective should be to tackle persistent and excessive imbalances. Effective cooperation should focus on policies that are demonstrably welfare‑improving at home and that, in turn, help to rebalance the global economy. We may not reach the first‑best global outcome (the rarely attainable ‘global planner’s optimum’), but this approach should bring us materially closer to a mutually beneficial result. Second, the system must be robust to all states of the world. I will come back to this later in some thoughts on the current context. This requires a considerable degree of flexibility in the design and operation of the institutions and thus the system. In fact, the IFIs I would argue have been pretty good at inventing and re-inventing themselves. This flexibility of re-invention depends critically on the collective leadership of member countries – which takes us back to the inbuilt national versus international tension. And, today, we face the challenge of re-invention in a multi-polar world, and one where the nature of the poles is shifting with the revealed tensions....

In his speech Andrew Bailey makes the point that the global economy has shown resilience despite heightened uncertainty, supply‑side shocks, and geopolitical risks, but downside risks remain significant. He highlights long‑term structural challenges—slowing productivity growth, ageing populations, trade fragmentation, and evolving financial systems—while identifying AI and robotics as the most likely next drivers of productivity. He says that sustaining growth and financial stability will require innovation, openness, international cooperation, and strong global institutions. It is a great pleasure to be here in AlUla and share thoughts at this important conference. You have given me the task of setting the scene in terms of the current context of the world economy. In other words, you have unfurled a large canvas, and given me 15 minutes to cover it with paint. Here goes! I will start by drawing out the key points from the latest update of the IMF World Economic Outlook. The good news is that the world economy has been remarkably resilient in the face of much higher policy uncertainty. Although this uncertainty, including the impact of tariffs, has weighed on the level of activity, and accepting that there is varying momentum of economic activity across countries and sectors, the world economy has shown an impressive ability to adapt to the shifting landscape. Inflation has not risen markedly in the last year, though the cost of living (which is an issue of price levels relative to income levels) remains an important concern in quite a few countries. Alongside this resilience of the world economy, global financial conditions have been accommodative, despite episodes of volatility and rising sovereign yields. An important part of this story has been equity valuations in the technology sector, and particularly in the AI part. Overall, market conditions could have been much worse given the backdrop. That they have not been so reflects I think a number of factors at work. First, markets have become cautious in their reactions since not all of the initial announcements of policy shifts have been followed through to the word, and on occasions the impact of the announcement on economies and financial markets has not been as initially predicted. Second, markets are cautious to trade geopolitical risk when some of the traditional safe haven assets are close to the epicentre of the risks themselves and exhibit close correlations to risky assets, thus negating the safe-haven protection. Third, we have seen evidence of fear of missing out, backed by arguments along the lines of this time is different, for instance because of the expected productivity benefits of AI. The net result is a risk of some complacency in financial markets. The IMF caution in their update that risks to the world economic outlook are tilted to the downside. Four reasons for this can be drawn out. First, there could be a significant escalation of geopolitical tensions. Second, and closely aligned, there could be further disruption to the fragile balance of trade policy. Third, fiscal vulnerabilities could emerge against a context of elevated public debt levels....

In his speech, Andrew welcomes progress on the G20 Cross-border Payments Roadmap and focuses on what more needs to be done to achieve the Roadmap’s goals. He announces additional measures from public authorities and encourages strong commitment and collective action from the private sector to improve outcomes for end users worldwide. Good morning and welcome to the Bank of England. It is our pleasure to host this important event. This is the third Financial Stability Board (FSB) Payments Summit, but the first to be held in person. As Chair of the FSB, can I thank you for joining us. I think it is very much the right time to meet in person as we have reached an important point in this critical work. I have two goals in mind for today. First, to recognise the very good work that has taken place over the last few years. Second, to start to firm up what more we need to do to achieve the G20’s goals on cross-border payments . And, by “we” I mean the private sector as well as the public authorities and international bodies. Moreover, as a spoiler, and I am going to be quite clear and honest, we have some tough challenges ahead. They are ones that we must take on because they are so important, not just to the financial system but for billions of people around the world – indeed, in all parts of the world. There are few issues in our responsibilities that have as universal a reach as cross-border payments. For as long as I can remember – and I have been here at the Bank over 40 years – it has been said that cross-border payments are slow, expensive and inefficient. While this is not universally true – some cross-border payments are very efficient – there can be no doubt that, overall, cross-border payments are slow and expensive, especially when compared to increasingly effective domestic payments. So, when I became Chair of the FSB last year, I identified cross-border payments as a continuing key priority. To be clear, what I mean by “continuing” is that we are not stopping until the job is done. Moreover, I added that there are several big reasons why the issue is important. One of those is that frictions in international payments have the potential to act as a driver of fragmentation of the global system, and this can ultimately reduce the system’s ability to absorb shocks and support sustainable economic growth. Another reason is that when I am asked to describe what we do at the Bank of England, I usually start by saying that we are in the money business. Money is the common factor in the things we do. Well, payments are a core function of money, so they are central to our interests. With all of this in mind, the state of affairs on cross-border payments leaves me with three big, framing questions. Why is it proving to be so challenging? Are the problems insurmountable (this is something I seriously doubt, but it has to be asked)? And what are the root causes of the remaining problems?

Good morning, and thank you to the American Society for Public Administration for the Paul Volcker Public Integrity Award. I regret that I cannot be with you in person today, but I am deeply grateful for this award, and for the opportunity to share some reflections. It is a humbling honor just to be mentioned alongside Chairman Volcker. He stands out as a towering figure in economics and central banking, perhaps our greatest public servant in the economic arena. His legacy is one of commitment to serve the public selflessly, courageously, and with the highest degree of integrity. Paul Volcker exemplified integrity in public service, enabling him to earn the trust of presidents and lawmakers from both parties. He served at the Treasury under three presidents—Kennedy, Johnson, and Nixon—before leading the Federal Reserve from 1979 to 1987, nominated by President Carter and reappointed by President Reagan. Non-political, non-partisan service is the bedrock of the Federal Reserve, and no one embodies that virtue more than Paul Volcker. His willingness to resist short-term pressures in the interest of achieving lasting price stability demonstrated the courage and long-term perspective that define principled public service. Paul Volcker set an example that all public servants should emulate. His actions remind us that independence and integrity are inseparable—we need independence to do what is right, and we need integrity to use that independence wisely. Ultimately, each of us will want to look back at the arc of our lives and know that we did what was the right thing. As Paul Volcker showed throughout his career, in the end, our integrity is all we have. Thank you again for this humbling honor.

It is a pleasure to be back at the ECB Watchers Conference. If this event had been held a few weeks ago, my speech would have been very different. The euro area economy ended the year with solid growth momentum. Inflation stood at 1.9% in February. And domestic growth engines looked to be strengthening, particularly private consumption, investment in digitalisation and defence spending. In all likelihood, we would have revised up our March forecasts for growth and revised them down for inflation. But we find ourselves yet again in a different world, whose contours are not yet clear. We are facing profound uncertainty about the path of the economy. None of us can resolve the uncertainty about how the war in Iran will play out. But what I can do is set out how we will approach this shock. The main message I want to convey is that our response will be rooted in our monetary policy strategy, which is well equipped to help us navigate it. Our strategy sets out three principles that will guide us. First, it requires us to assess the nature, size and persistence of the shock before taking decisions on policy.

2 Staff projections see lower growth and higher inflation due to Iran war Sources: Eurostat and Eurosystem staff projections (March 2026). Notes: The vertical line indicates the start of the March 2026 projection horizon. The solid line indicates published data, while the dashed lines indicate projections. Latest observation: Q4 2025 (second estimate). Real GDP growth in the euro area Sources: Eurostat and Eurosystem staff projections (March 2026). Notes: The vertical line indicates the start of the March 2026 projection horizon. The horizontal dotted line indicates the 2% medium-term inflation target. The solid line indicates published data, while the dashed lines indicate projections. Latest observation: Q4 2025 (second estimate). . HICP inflation in the euro area (quarter-on-quarter percentage changes) (annual percentage changes) -0.5 0.0 0.5 1.0 1.5 2.0 2.5 2021 2022 2023 2024 2025 2026 2027 2028 March 2026 staff projections March 2026 staff projections-Adverse scenario March 2026 staff projections-Severe scenario December 2025 staff projections GDP growth 0 2 4 6 8 10 12 2021 2022 2023 2024 2025 2026 2027 2028 March 2026 staff projections March 2026 staff projections-Adverse scenario March 2026 staff projections-Severe scenario December 2025 staff projections HICP inflation 3 Global economy is shifting from globalisation to fragmentation Sources: Bloomberg and ECB staff calculations. Notes: Dark yellow line denotes the 30-day moving average of the trade policy uncertainty index, whereas the light blue line represents the daily series. Latest observation: 16 March 2026 (reporting lag). Euro area–US bilateral effective tariff rate (percent) 1.5 10.2 13.1 12.1 10.5 Pre- Trump June 2025 projections September 2025 projections December 2025 projections March 2026 projections 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 Trade policy uncertainty (index) Sources: Trade Data Monitor, White House, WITS and ECB staff calculations. Notes: The effective tariff rate is calculated by weighting on 2024 US-reported import values at the HS6 product level. 0 200 400 600 800 1000 1200 1400 1600 1800 2000 01/16 01/18 01/20 01/22 01/24 01/26 April tariffs Iran war Supreme court ruling 16/03/ 4 Euro area remained resilient due to robust domestic demand and strong labour markets Real GDP and components (year-on-year percentage changes; percentage point contributions) Source: Eurostat. Latest observation: 2025 Q4. Unemployment rate and employment (lhs: percentages; rhs: millions of persons) Sources: Eurostat and ECB staff calculations. Last observation: 2025 Q4. 140 145 150 155 160 165 170 175 180 5 6 7 8 9 10 11 12 13 2000 2005 2010 2015 2020 2025 Unemployment rate Employment (rhs) -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2023 2024 2025 Domestic demand (incl. inventories) Net exports Real GDP growth 5 -16 -12 -8 -4 0 4 8 2010 2012 2014 2016 2018 2020 2022 2024 Euro area United States China Chinese competition is weighing on euro area’s export performance Global export market shares of non-energy goods volumes (percentage point change since 2010) Sources: UNCTAD and ECB staff calculations....

1 Monetary policy in the euro area Source: ECB. Deposit facility rate (DFR) Source: ECB. Notes: Short-term credit operations refer to three-month longer-term refinancing operations (LTROs) and main refinancing operations (MROs); long-term credit operations refer to LTROs with a maturity longer than three months, targeted longer-term refinancing operations (TLTROs) and other lending operations. Other assets and other liabilities cover all other, non-monetary policy components. APP stands for asset purchase programme and PEPP for pandemic emergency purchase programme. The latest observations are for 7 April 2026. Asset side of the Eurosystem balance sheet (percentages per annum) (EUR trillions) -1 0 1 2 3 4 5 2019 2021 2023 2025 DFR 07/04/26 0 2 4 6 8 10 2019 2021 2023 2025 APP & PEPP Long-term credit operations (>3m) Short-term credit operations (<=3m) Other assets 07/04/ 0 1 2 3 4 5 6 7 8 9 Q1 19 Q3 20 Q1 22 Q3 23 Q1 25 Non-energy inflation PCCI excluding energy Q1 26 -2 0 2 4 6 8 10 12 Q1 19 Q3 20 Q1 22 Q3 23 Q1 25 Q1 26 -20 -10 0 10 20 30 40 50 Q1 19 Q3 20 Q1 22 Q3 23 Q1 25 Q1 26 2 Sources: Eurostat and ECB calculations. Note: Harmonised Index of Consumer Prices (HICP). The latest observations are for the first quarter of 2026. HICP inflation Inflation developments Sources: Eurostat and ECB calculations. Note: The latest observations are for the first quarter of 2026. Energy inflation Sources: Eurostat and ECB calculations. Notes: PCCI refers to the Persistent and Common Component of Inflation. PCCI excluding energy is computed taking the quarterly average of monthly series. The latest observations are for the fourth quarter of 2025 for PCCI excluding energy and for the first quarter of 2026 for non-energy inflation. Non-energy inflation (annual percentage points) (annual percentage points) (annual percentage points) 3 Sources: December 2021, June 2023, December 2024, September 2025, December 2025 and March 2026 Eurosystem /ECB staff macroeconomic projections. Real GDP 100 102 104 106 108 Q1 22 Q1 24 Q1 26 Q1 28 December 2021 (pre-tightening) June 2023 (pre-loosening) December 2024 September 2025 December 2025 March 2026 Q4 28 GDP and components across different projection rounds Sources: December 2021, June 2023, December 2024, September 2025, December 2025 and March 2026 Eurosystem /ECB staff macroeconomic projections. Real private consumption 100 101 102 103 104 105 106 107 108 109 Q1 22 Q1 24 Q1 26 Q1 28 December 2021 (pre-tightening) June 2023 (pre-loosening) December 2024 September 2025 December 2025 March 2026 Q4 28 Sources: December 2021, June 2023, December 2024, September 2025, December 2025 and March 2026 Eurosystem /ECB staff macroeconomic projections. Real total investment 98 100 102 104 106 108 110 112 114 Q1 22 Q1 24 Q1 26 Q1 28 December 2021 (pre-tightening) June 2023 (pre-loosening) December 2024 September 2025 December 2025 March 2026 Q4 28 Sources: December 2021, June 2023, December 2024, September 2025, December 2025 and March 2026 Eurosystem /ECB staff macroeconomic projections....

Thank you for inviting me to speak today. I am going to use my time to reflect on central bank independence and to point to where I believe the concept is incomplete and hence more challenged. I will use the term CBI hereon. Modern CBI emerged out of the high inflation era of the 1970s. This does not mean that the concept originated then, it has a much longer history. But in its modern form the 1970s was the experience that prompted change. I will use the Bank of England as a brief case study to illustrate the antecedents to the change. The first stop is 1802, when Henry Thornton wrote &ldquo;An Enquiry into the Nature and Effects of the Paper Credit of Great Britain&rdquo; . Thornton is sometimes described as the father of the modern central bank. He asserted that: &ldquo;The Bank of England is quite independent of the executive government&rdquo; (p61). Reconciling this with the extensive lending of the Bank to the Government, he commented that: &ldquo;The ground on which the bank lends so much to government is clearly that of mutual convenience as well as long habit&rdquo; (p61). &ldquo;The preference is no symptom of a want for independence of its directors&rdquo; (p62). &ldquo;The government of Great Britain is under little or no temptation either to dictate to the Bank of England, or to lean upon it in any way which is inconvenient or dangerous to the bank itself&rdquo; (p63). And finally, &ldquo;To suffer either the solicitation of merchants, or the wishes of government, to determine the measure of the bank issue, is unquestionably to adopt a very false principle of conduct&rdquo; (p295). Two points I would draw out from Thornton&rsquo;s description. First, the older notion of independence relied on what in modern terms we would call an alignment of interests and incentives between government, private interests and the central bank. It did not provide for anything more formal in terms of the form of independence. Second, it did though require an anchor, and that was the value of money. On this point, let&rsquo;s go back to John Locke writing in the 17 century . He emphasised the importance of &ldquo;money being constantly the same, and by its interest giving the same sort of product, through the whole country&rdquo; (p35). &ldquo;Money is the measure of commerce, and of the rate of everything, and therefore ought to be kept as steady and invariable as may be&rdquo; (p113). In the wake of the experiences throughout the twentieth century, and particularly after the 1970s, the idea of CBI being assured only by a balance of interests and incentives looked past its time, but the anchoring on the value of money remained as important as ever. Three things followed from this. First, for many countries, the UK included, CBI evolved to a system of formal statutory powers established in legislation. I do, of course, recognise that some other countries reached this point earlier in the twentieth century.

2 Major progress in the euro area since the global financial and sovereign debt crises Macro stability C onvergence Financial stability 3 Macro stability: Inflation brought back to target without recession or financial instability Sources: European Commission and Eurostat. Latest observation: Q4 2025. HICP inflation in the euro area (annual percentage changes) Source: Eurostat. Latest observation: March 2026 (flash estimate). . -2% 0% 2% 4% 6% 8% 10% 12% 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Real GDP growth and unemployment rate in the euro area (quarter-on-quarter percentage changes; percent) 6 7 8 9 10 -4 -3 -2 -1 0 1 2 3 4 2017 2018 2019 2020 2021 2022 2023 2024 2025 GDP growth (lhs) Unemployment rate (rhs) -11.1 11. Price- and quantity-based indicators of financial integration in the euro area (index) -1 0 0 0 0 0 0 0 0 0 0 0.0 0.2 0.4 0.6 0.8 1.0 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025 Price-based Indicator Quantity-based indicator Priced based indicator long-term average Quantity-based indicator long-term average 4 Convergence: Financial markets in the euro area have become more integrated Source: Bloomberg. Notes: Yields and hence spreads for Greece are available from March 2007. Latest observation: 9 April 2026. 10-year sovereign spreads over Germany (basis points) Source: ECB staff calculations. Notes: The price-based composite indicator aggregates ten indicators for money, bond, equity and retail banking markets; the quantity-based composite indicator aggregates five indicators for the same market segments except retail banking. The indicators are bounded between zero (full fragmentation) and one (full integration). Increases in the indicators signal greater financial integration. Latest observation: Q4 2025. COVID-19 pandemic Sovereign debt crisis Global financial crisis Introduction of the euro 20 70 120 170 220 270 2022 2024 2026 France -500 0 500 1000 1500 2000 2500 3000 3500 2005 2009 2013 2017 2021 2025 Italy Spain Greece Portugal Global financial crisis Sovereign debt crisis COVID-19 pandemic Financial stability: Banks have solid capital ratios and are more profitable 5 Capital ratios of banks (percent) Sources: Bloomberg L.P. and ECB calculations. Notes: Tier 1 capital ratio as a percentage of risk-weighted assets, based on an unbalanced sample of up to 76 euro area banks. Latest observation: Q4 2025. Euro area banks’ return on equity (RoE) (percent) Sources: ECB supervisory data and ECB calculations. Notes: The sample are all SSM significant institutions. Latest observation: Q4 2025. 0 2 4 6 8 10 12 14 16 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1 2021 Q1 2022 Q1 2023 Q1 2024 Q1 2025 RoE (weighted average) Interquartile range COVID-19 pandemic 5 7 9 11 13 15 17 19 21 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Tier1 ratio (median) Interquartile range Global financial crisis Sovereign debt crisis COVID-19 pandemic 6 Reviving growth is the euro area’s key challenge Integration Innovation Sovereignty

The global economy is navigating turbulent waters. Competing forces affecting economic growth are intersecting in a complex and uncertain environment. Global growth has been supported by rising investments related to artificial intelligence and fiscal policy across major economies. At the same time, geopolitical and trade tensions are a headwind and a major source of risks. The adverse effects on the global economy from the war in the Middle East primarily stem from the sharp increase in energy prices. Together with tighter financial conditions and heightened uncertainty, the war is having a negative impact on global growth, while posing upside risks to inflation. Other geopolitical tensions, in particular Russia’s unjustified war against Ukraine, remain a major source of uncertainty. Protectionist policies are also weighing on global trade and fuelling uncertainty, while triggering a reconfiguration of global trade flows. Additional frictions in international trade could disrupt supply chains, reduce exports and weaken consumption and investment. A predictable and open international economic order remains essential to sustain global trade, investment and shared prosperity. For the euro area, the medium-term implications of the Middle East war will depend on the intensity and duration of the conflict, as well as on how the associated shocks propagate through the economy. Reducing the share of the EU’s energy that is imported and accelerating the energy transition are essential to increase energy security, competitiveness and sustainability. The euro area economy entered this period of heightened uncertainty from a relatively solid position. Economic activity expanded by 1.4% in 2025, supported by rising real incomes, low unemployment and solid domestic demand. Construction and housing renovation strengthened, and firms increased their investment, particularly in digital technologies. Net exports began to stabilise towards the end of the year, despite the challenging global environment marked by volatile global trade policies. The latest ECB staff projections incorporate this heightened uncertainty and include alternative scenarios alongside the baseline. The baseline foresees real GDP growth of 0.9% this year, rising to 1.3% in 2027 and 1.4% in 2028. These projections rely on technical assumptions that envisaged a relatively contained conflict. At the same time, low unemployment, solid private sector balance sheets and higher spending on defence and infrastructure should continue to underpin growth. Under an adverse scenario, which assumes that energy supply disruptions persist until the third quarter of 2026, with a rapid adjustment afterwards, real GDP growth would be lower in 2026, before gradually converging to the baseline path thereafter. Under a severe scenario, which assumes a more intense and prolonged disruption continuing until late 2026, growth would be significantly reduced this year and next. Risks to the growth outlook are tilted to the downside, especially in the near term. The war in the Middle East is a downside risk to the euro area economy, adding to the volatile global policy environment....