European Central Bank (ECB) remains committed to its price stability goal, Lagarde clearly stated that it will not participate in government defense financing.

European Central Bank (ECB) President Lagarde made it clear on Thursday in Frankfurt during a press conference that the ECB has no intention to help finance defense spending for governments and will steadfastly fulfill its core mission of price stability. Lagarde pointed out that the significant increase in military spending in European countries could have an impact on the economy, and the ECB will assess this. However, when asked by reporters if the ECB would provide a "loose financial environment" to support this process, she gave a negative response. "If your question is whether we will participate in financing efforts - this is not the ECB's responsibility," Lagarde emphasized, "The European Investment Bank and several specialized institutions have that function. Our responsibility and mission is to maintain price stability." Currently, the EU is relaxing fiscal rules and providing loans to promote a new round of defense investment, while Germany also plans to adjust its budget system to boost defense procurement. This shift in fiscal policy poses a challenge to the ECB's monetary policy. Lagarde stated: "If these measures are fully implemented, they will definitely have fiscal implications, and fiscal implications will have an impact on demand. Therefore, we must take that into consideration." But she stressed that this does not mean the ECB needs to adjust its monetary policy, as the sole objective of the central bank remains price stability according to Article 127 of the EU Treaty. Last week, the Governor of the Bank of Greece, Stournaras, suggested that the ECB may face pressure to contribute to wider EU policy objectives, but he also insisted that the central bank cannot deviate from its core mission. European Commission President von der Leyen proposed this week to mobilize around 800 billion euros (approximately 866 billion dollars) to strengthen Europe's military capability. Germany's future Chancellor Merz stated on Tuesday that they will amend the constitution to increase military spending and pledged to strengthen defense "at all costs." This news triggered the most severe sell-off in the German bond market since 1990. In response, Lagarde stated that the ECB will still need to spend a considerable amount of time assessing the potential impact of such spending waves. "We need to understand how this policy will work, the timetable for implementation, and the sources of funding in order to draw conclusions and assess its contribution to economic growth, as well as its ultimate impact on inflation." Against the backdrop of escalating trade conflicts and rising military spending in Europe, the ECB announced its sixth interest rate cut of the year on Thursday, maintaining its loose monetary policy. However, Lagarde emphasized that any future adjustments to monetary policy will continue to be based on data-driven principles, rather than advance commitments. "If the data shows that a rate cut aligns with our targets, we will act; if the data shows that conditions are not right for a rate cut, we will pause," Lagarde stated, emphasizing that the ECB will remain flexible, rely on data, and make decisions at each meeting. Lagarde pointed out that the current global economic situation is filled with uncertainty. "Some use the term 'extreme uncertainty,' and we have also discussed whether to use 'high and rising' uncertainty. In any case, risks are everywhere." She added that the ECB's Governing Council believes that defense and infrastructure investments driven by the EU and Germany "will overall contribute to European economic growth," but it may also push up inflation. "Government spending increases will affect overall demand and have an impact on price levels." However, Lagarde also mentioned that if the effect of monetary policy restraining demand exceeds expectations, inflation could be lower than expected. Furthermore, escalating global trade tensions remain one of the downside risks to European economic growth. Despite the heightened uncertainty, the growth of European household incomes and a robust labor market are gradually driving consumption recovery. However, consumer confidence remains fragile, and the savings rate remains high.