The ECB is in a bind over rate hikes — the private sector could be doing the bank's job for it

A projection of a Euro currency sign is pictured on the facade of the European Central Bank (ECB) headquarters in Frankfurt am Main, western Germany, on Dec. 30, 2025. Kirill Kudryavtsev | Afp | Getty Images European Central Bank policymakers face a dilemma as efforts to combat inflationary pressures with interest rate hikes risk tipping a fragile euro zone economy into recession — but they may not have to lift a finger. Market expectations of forthcoming tighter monetary policy — meaning rate hikes — are already causing more restrictive financial and lending conditions, according to European economist at Goldman Sachs Alexandre Stott. The "transmission of tighter policy is already underway," he wrote in an analysis note published on Wednesday. "Bank lending standards — which are particularly important in the euro area, where loans account for over half of all corporate financing — have already tightened notably and are likely to tighten further," Stott said, adding that the challenge is assessing just how much restriction is being transmitted to the economy. "On the one hand, most of the restriction underway is attributable to expectations of a higher policy rate. The [ECB's] Governing Council will therefore have to deliver at least some of the expected hikes if it wants to weigh on demand and lean against inflationary pressures," he said. …