European firms require deeper integration within the Single Market to enhance competitiveness, European Central Bank Executive Board member Piero Cipollone said in an interview published on Monday. The bloc’s 450 million consumers represent a significant opportunity for scale, but persistent internal trade restrictions—particularly in goods and services—limit firms’ ability to expand and reduce production costs, he said.
Cipollone emphasized that removing these barriers should take priority over additional measures, as it would enable European companies to achieve economies of scale comparable to global peers in sectors such as automotive, IT, and finance. Cross-border business combinations remain a viable path, though firms should determine expansion strategies within the framework of European competition law, he added.
Domestic demand also plays a critical role in strengthening competitiveness, Cipollone noted. While the euro area’s current account surplus suggests room for demand growth without external imbalances, weak investment—partly linked to constrained expansion opportunities—remains a hurdle. The ECB’s primary mandate of price stability supports macroeconomic stability, reducing uncertainty and enabling firms to plan effectively, he said.
Addressing cost-push inflation risks, Cipollone cautioned against aggressive interest rate hikes in response to supply shocks, such as energy price spikes, which could further weaken growth. Instead, monetary policy should focus on anchoring medium-term inflation expectations to prevent temporary volatility from embedding into broader price dynamics. Fiscal policy, he argued, is better suited to address short-term shocks but must be temporary, targeted, and avoid regressive impacts while tackling structural dependencies, particularly on fossil fuels.
The transition to renewable energy would not only reduce external vulnerabilities but also lower energy costs for European firms, keeping capital within the bloc, he said. On wages and inflation, Cipollone stressed that productivity growth—not wage suppression—is the sustainable path to protecting real incomes. He warned against measures that might boost competitiveness at the expense of labor standards or worker safety.
Education and training systems must adapt to technological advancements, including artificial intelligence, to enhance workforce efficiency, he added. While some commentators have drawn parallels between current geopolitical tensions and the 1970s stagflation era, Cipollone dismissed the risk of such a scenario, citing resilient economic data and controlled inflation projections. The European economy, though slowing, remains more resilient than anticipated, with inflation aligned to baseline forecasts.
On the digital euro, Cipollone clarified that it would complement, not replace, cash, with the ECB recently launching a public consultation on its design. Concerns about transaction data monitoring were acknowledged, but he did not elaborate on specific safeguards beyond emphasizing the digital euro’s supplementary role.
