The European Central Bank (ECB) will meet on Thursday, and the agenda is likely to be dominated by France’s deepening political crisis. As the eurozone’s second‑largest economy, France’s turmoil presents a new challenge for policymakers. The ECB is expected to keep its key interest rate at 2 % for a second consecutive meeting, given that inflation is under control and trade tensions have eased after the EU‑US deal reached in July.
The recent French political crisis, however, has complicated matters for the central bank and the 20 countries that use the euro. Prime Minister François Bayrou resigned on Monday after losing a confidence vote on an austerity budget and was quickly succeeded by Sébastien Lecornu, France’s third prime minister in a year. This turnover has pushed France’s borrowing costs above those of Italy, traditionally the eurozone’s debt laggard. ECB President Christine Lagarde will likely be questioned about the French situation, though she may stress fiscal responsibility without commenting on the politics of individual member states.
Analysts suggest the ECB might consider the Transmission Protection Instrument (TPI), a tool designed to calm disorderly bond‑market movements, but its activation appears unlikely at this stage. Established in 2022 during Italy’s instability, the TPI allows the ECB to purchase bonds of a eurozone country that faces unjustified market attacks. Unless the French crisis spreads and raises borrowing costs elsewhere, the instrument is expected to remain unused.
France’s debt now stands at €3.3 trillion, or 114 % of GDP, and the new prime minister faces the daunting task of assembling a government with sufficient parliamentary support to avoid an early collapse and of drafting a budget for 2026. The ECB’s concerns are compounded by a bleak outlook in Germany, the eurozone’s largest economy, where recent data have dampened hopes for a strong rebound.
Despite these worries, the ECB is anticipated to keep interest rates unchanged, as inflation has stabilized around the bank’s 2 % target. New forecasts will be released on Thursday, with analysts expecting modest downgrades to growth and inflation projections for 2026. The tariff uncertainty that kept the ECB on edge for months has eased after the EU‑US deal, which sets levies on most bloc goods at 15 %. The ECB’s decision on Thursday will be closely watched as it navigates the challenges posed by France’s political crisis and the broader eurozone economic outlook.
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