There was a rare note of calm in the air this week at the European Central Bank’s annual retreat in Sintra, Portugal—a gathering more accustomed in recent years to hand-wringing than optimism.
For the first time in over three years, eurozone inflation in June returned to the ECB’s official target of 2 percent. The timing of the announcement—coinciding with the central day of the summit—cast a favourable hue over proceedings. Gone were the fears of runaway price rises that have stalked policymakers since 2021. In their place: guarded satisfaction and a pivot towards Europe’s longstanding economic Achilles’ heel—its chronic underperformance relative to the United States and China.
“We are at 2 percent,” said Christine Lagarde, President of the European Central Bank, as she opened a panel on Tuesday morning. “I’m not saying mission accomplished, but I say target reached.”
Her tone was measured but unmistakably proud. For over two years, the ECB has fought inflation with steep interest rate hikes, a reversal of the ultra-loose monetary policy that defined the eurozone’s post-pandemic landscape. The price was high—stagnant growth, fragile consumer sentiment, and political friction from Paris to Rome—but the outcome, at least on paper, now appears to vindicate Frankfurt’s course.
Yet, if the headline battle against inflation is easing, a deeper unease lingers. Europe may have tamed prices, but it has not closed the economic gap with its global rivals. And for many in Sintra this year, that was the more pressing issue.
The real race: staying competitive
With inflation ebbing, much of the conference’s agenda shifted toward Europe’s structural deficiencies: sluggish productivity, a fragmented capital market, and a labour force still constrained by national barriers and bureaucratic inertia.
“We are very good at analysing our problems,” admitted Joachim Nagel, president of Germany’s Bundesbank. “But we are quite poor at implementing solutions quickly. We are too risk-averse, and too slow.”
Nagel, whose remarks drew nods from his counterparts, pointed to a shifting global environment as a catalyst for overdue reform.
“If America becomes more inward-looking, Europe must seize the opportunity to strengthen itself—not just politically, but economically,” said one French official present at the conference. “We cannot remain dependent on U.S. capital or Chinese manufacturing forever.”
Longstanding ideas, new urgency
Many of the solutions discussed in Sintra are hardly new. Calls for a genuine Capital Markets Union—streamlining cross-border investment rules and unlocking European pension funds—have been circulating for nearly a decade. So too have proposals to make it easier for workers to move between EU member states without red tape or qualification bottlenecks.
But this time, there was a sense that political momentum may finally align with policy ambition.
Christine Lagarde urged lawmakers to “build on this macroeconomic window” while the ECB holds interest rates steady and inflation remains tame. “Europe needs to ask itself whether it wants to be a player or an observer,” she said.
An opportunity, not a victory lap
Still, even as the champagne flutes clinked in the shaded courtyards of Sintra, few were under any illusions about the hard road ahead.
“Europe has done the hard work of stabilising prices,” said Holger Schmieding, chief economist at Berenberg Bank. “But that is not the same as revitalising growth or encouraging risk-taking. For that, we need bold reforms, not just patient central banking.”
The question now is whether the rare moment of economic stability—so long absent from eurozone headlines—can become a springboard rather than a plateau.
“Inflation was the immediate fire,” said one Italian official. “Now we need to rebuild the house.”
And for once, in Sintra at least, there seemed to be agreement on the blueprint.
