Brussels – The scorching summer of 2026 is just the beginning: “This summer’s heatwaves, droughts and wildfires were a warning.” The President of the European Central Bank, Christine Lagarde, in a post she wrote for the ECB blog, reflects on the season that just ended, urging governments to tackle the problem. Because, she stresses, while the economic impact of these extreme weather events “has so far been limited, but the costs of climate change are rising, and future shocks could be harder to absorb.”
The worst mistake one can make is to focus solely on the present: “The near-term picture understates the risks as the climate keeps warming,” Lagarde warned, recalling that “the euro area’s exposure is broad: nearly three quarters of euro area businesses depend heavily on at least one service provided by nature, with water-related services the most exposed.” It follows, therefore, that “climate-related shocks can leave lasting scars on affected regions, increasing economic volatility and amplifying the effects of other shocks.”
Lagarde attempts to prevent another mistake from being made – that of underestimating natural challenges: “Heat and drought are not the only threats,” she points out. “Nearly 12 per cent of euro area economic output is exposed to risks linked to insufficient flood protection.”
A change of course is therefore needed: “As extreme weather becomes a regular feature of our summers, Europe must proactively prepare and be better protected against its financial fallout.” This means, first and foremost, ensuring adequate insurance cover, given that, to date, “only a quarter of catastrophe losses in Europe have been covered by insurance,” resulting in the costs of climate-related damage falling entirely on the shoulders of households and businesses. In short, both supply and demand – production and consumption – come to a standstill, and this becomes a problem for the economy.
But it also means focusing on energy production from renewable sources and the construction of grid infrastructure. In this regard, Lagarde suggests, “as building out the grid will take time, Europe should make it easier for firms to supply themselves in the meantime.”
English version by the Translation Service of Withub
