Brussels – To counter economic turbulence through monetary policy and its decisions — not easy ones, to be sure, nor guaranteed in their effectiveness. The European Central Bank knows what it is doing, but it also acknowledges and admits that households and businesses then act regardless of what the Governing Council decides. The Eurotower’s technicians, on the central bank’s blog, want to put it in black and white: faced with growing uncertainty, whether real or perceived, the propensity to save advances at the expense of spending and investment.
So far, to counter rising inflation and respond to market distortions, the Eurotower has made extensive use of interest rate hikes (later reduced several times). “Changes in interest rates make it cheaper or more expensive for businesses to get a loan and for households to get a mortgage,” the ECB’s experts say. “But when the economic future is uncertain, businesses and households are less likely to invest in big, long-term plans in the first place,” they stress.
https://www.eunews.it/en/2025/08/07/ecb-says-tariff-deal-is-a-step-forward-but-uncertainties-remain/
This means that when faced with situations that are difficult to predict, both categories ” means they may not react as much to interest rate changes as they would under more predictable circumstances.” In other words, “Volatile economic conditions are likely to make firms and households more hesitant to spend on consumption and investments independent of what the central bank does.” This is because the climate of general difficulty in understanding what to do leads to cautious choices, aimed at saving and protecting one’s finances.
Economic uncertainty “has been elevated recently due to geopolitical conflicts and trade tensions,” they admit in Frankfurt, and it is for this precise reason that people are beginning to look with concern at growth prospects. One of the reasons for these concerns is precisely the disconnect between institutions, the productive world, and consumers. “Changes in monetary policy have a weaker impact on the euro area economy when uncertainty is high,” the experts admit, in what seems to be a call for policy- EU and national- to create the conditions needed to be able to spend.
English version by the Translation Service of Withub
