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Questioning ECB's Hold: The Risk of Squeezing an Economy That Needs Relief

Published July 26, 2026 at 4:03 PM UTC

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By keeping rates at 4%, the ECB is gambling that a sluggish economy can withstand further tightening, but the evidence suggests the risk of a deeper downturn is rising. Manufacturing has been in recession for months, and services are beginning to falter as consumers cut spending. Businesses, especially small and medium-sized firms, are struggling with higher borrowing costs and declining orders. Households with variable-rate mortgages face higher monthly payments, dampening consumption. The ECB's own forecasts show inflation falling toward 2% by 2025, yet it continues to prioritize caution over growth. Delaying rate cuts could turn a mild slowdown into a prolonged recession, harming employment and public finances. The eurozone economy is already underperforming the US, and holding rates too long may widen that gap. A modest rate reduction now would provide breathing space for businesses and households while still keeping policy tight enough to manage inflation. The ECB risks doing too much, too late.