Gabriel Makhlouf: Understanding your lane, managing turning points

On 3rd July 2026, Gabriel Makhlouf, Governor of the Central Bank of Ireland, addressed the Les Rencontres Économiques d Aix-en-Provence. Makhlouf highlighted the importance of understanding one's role and managing turning points in the context of the euro area's monetary union. In 2012, Mario Draghi pledged to do "whatever it takes" to preserve the euro, which proved effective in stabilizing bond markets.

However, Makhlouf pointed out that the central bank stepped in to address solvency concerns of governments, despite having no formal fiscal relationship with them. He emphasized the need for clear mandates and well-communicated commitments, stating that price stability is non-negotiable but requires credible fiscal commitment to debt stabilization.

Makhlouf discussed two instances where fragmentation risk emerged: during the pandemic, leading to the PEPP, and when rates rose rapidly in 2022, leading to the TPI. These instruments, while not directly funding deficits, address sovereign market disruptions to maintain monetary policy across the union. Makhlouf, formerly from New Zealand Treasury, contrasted the coordination dynamics in the euro area with that of his former role, noting that consensus assignment allowed for effective stabilisation without centralised coordination.

He argued that while some alignment of fiscal and monetary policy is appropriate for large shocks, it should not become a standing expectation as it undermines central bank credibility. Makhlouf stressed the importance of maintaining credibility by clearly communicating actions and their reasons, suggesting that the rest of the time, each Member State should uphold credible fiscal commitments to ensure the ECB's mandate remains intact.