ECB’s Nagel calls a December hike ‘rather obvious’ as Lane rules out bond-market help for France

European Central Bank Governing Council member Joachim Nagel said there is a strong case to raise interest rates next month, calling a December rate hike “rather obvious”¹. Nagel, who is also president of the Bundesbank, made the comments in a television interview and held to that view despite relief on energy prices².

ECB chief economist Lane said the rate path hinges on how far inflation spreads⁴. Energy prices may be falling, but the ECB’s interest rate decisions will depend on how strongly inflation spreads, he said in an interview in London^4,5. Governing Council member Kazaks said the ECB will face “more nuanced” trade-offs in future as it weighs the need to tame inflation against the fallout on growth³.

France’s bond problem

Lane also said the ECB should not adjust the run-off of its bond holdings or deploy its crisis tool to help France with its budget problems, and that the trouble in French bonds must be fixed in Paris⁹. France and Belgium have fallen foul of a new divide in the euro-zone bond market, and rising borrowing costs have put the spotlight on whether and when the ECB might step in to calm the region’s markets⁸.

The growth backdrop is weak. Moody’s halved its full-year GDP growth forecast for France to 0.2 percent⁷. France’s central bank said the country is on course to avoid a recession, with services activity also forecast to grow, though at a slower pace^10,11. A technical recession is defined as two consecutive quarters of economic contraction¹¹.

What to watch

Politics adds to the fiscal question. Elections in France since 2022 have ended in minority governments and hung parliaments, and the deteriorating fiscal position is raising concerns among investors¹². A two-round presidential election is due on April 18 and May 2, with a parliamentary election likely to follow a few weeks later¹².

For markets, the near-term questions are whether the ECB raises rates in December as Nagel expects¹, how Kazaks’s growth trade-offs shape the size of any further moves³, and whether French and Belgian borrowing costs keep rising after Lane’s refusal to offer the ECB’s crisis tool^8,9.