Isabel Schnabel, a member of the European Central Bank's (ECB) Executive Board, has discussed the state of macroeconomic, fiscal, and financial stability in the euro area. According to Schnabel, the euro area economy has remained resilient despite experiencing large shocks. The latest data show that the unemployment rate has been declining, with the latest observation in August 2026. The year-on-year percentage change in the Harmonised Index of Consumer Prices (HICP) has also been trending downward.
Schnabel highlighted the importance of sound regulation in allowing banks to act as shock absorbers rather than amplifiers. The capital ratios of banks in the euro area have been stable, with a Tier 1 capital ratio of around 15% as of Q2 2026. The return on equity (RoE) for euro area banks has also been improving, with the latest observation in Q2 2026 showing a RoE of around 7%.
The public debt ratio in the euro area has been increasing, with the latest observation in Q1 2026 showing a debt ratio of around 95% of GDP. The private debt ratio has also been rising, with the latest observation in Q1 2026 showing a debt ratio of around 160% of GDP. Schnabel noted that demands on the public budget are rising due to factors such as defence spending, interest rates, ageing, and climate change.
In terms of fiscal stability, Schnabel discussed the concept of a national escape clause (NEC), which allows for flexibility in fiscal policy in exceptional circumstances. The NEC is equivalent to 1.5% of GDP and can be applied if a Member State requests activation. Schnabel also highlighted the importance of structural primary balance (SPB) in achieving fiscal sustainability.
The presentation also touched on the topic of financial stability, with Schnabel discussing the impact of additional defence and infrastructure spending on real GDP growth and public debt. The results showed that a package of 100% productive public investment could have a positive impact on potential growth, while a mixed composition package with 50% government consumption would have a lower growth impact.
Finally, Schnabel discussed the potential impact of artificial intelligence (AI) on total factor productivity (TFP) and the share of energy consumption from renewables in the EU. The results showed that AI could have a significant impact on TFP, with estimates ranging from 1% to 5% increase over 10 years. The share of energy consumption from renewables in the EU has been increasing, with the latest observation in 2025 showing a share of around 22%.