Christine Lagarde: A warning from Europe’s hot summer

4 November 2026

By Christine Lagarde, President of the European Central Bank

This summertime’s heatwaves, dry spells and wildfires were a caution. Their financial effect has actually up until now been restricted, however the expenses of environment modification are increasing and future shocks might be more difficult to take in. Europe requires much better defense versus the monetary fallout of environment modification and a more versatile energy system that takes advantage of tidy power.

This summertime’s record-breaking heat was above all a human and ecological disaster. Over 30,000 excess deaths were taped throughout Europe throughout the heatwaves. Wildfires burned 400,000 hectares in Spain and France, and the dry spell decreased water levels in significant rivers such as the Rhine and the Danube, interrupting crucial shipping paths and the cooling of nuclear power stations.

In the words of European Commission President Ursula von der Leyen, it was a “summer season of fact”.^[1] Europe is the fastest-warming continentheating at around two times the worldwide average, and severe weather condition is ending up being more regular and more serious. This is why I invite the Commission’s EU Framework for Climate Resiliencereleased recently, which will be essential to increase Europe’s environment durability.

The expenses surpass the instant damage

ECB personnel quote that this summer season’s severe weather condition has actually had just a little and momentary impact on euro location activity. In Germany, the majority of the effect of the record-low waters in the Rhine on GDP development is anticipated to reverse as soon as river circulation normalises. In Italy, output will suffer since of the searing heat and absence of rains, while in France and Spain the impacts of comprehensive wildfires have actually up until now been focused generally in farming, forestry and tourist.

The near-term image downplays the threats as the environment keeps warming. The euro location’s direct exposure is broad: almost 3 quarters of euro location services depend greatly on a minimum of one service supplied by nature, with water-related services the most exposed. And climate-related shocks can leave long lasting scars on impacted areas, increasing financial volatility and magnifying the impacts of other shocks.

Typically, financial activity in impacted areas is 1.5% lower 2 years after a heatwave, and 3% lower 4 years after a dry spelldriven in part by lower efficiency and individuals moving. The dry summer season conditions have likewise significantly intensified potential customers for farming supply in Europe and might press food inflation greater in the coming year.

Heat and dry spell are not the only dangers. Almost 12% of euro location financial output is exposed to dangers connected to inadequate flood security, which can result in destructive losses like those experienced in Spain and lots of other locations in Europe over the previous years. Recuperating from such losses is not basic. Historically, just a quarter of disaster losses in Europe have actually been covered by insurance coverage, indicating families and services typically bear the force of the expense unless financial authorities are contacted us to a rescue that they can no longer manage.

Tidy energy cushioned the energy shock, however the heat evaluated it

The energy shock from the war in the Middle East accompanied this summertime’s heat and the 2 connected.

At the start of 2026, wholesale electrical energy costs responded less to increasing gas costs than in the 2021-22 crisis, in big part due to the fact that lots of euro location nations have actually increased their low-carbon electrical energy generation, especially through renewables. Spain is a noteworthy example. The share of hours in which gas plants set electrical energy costs has actually fallen from around 80% in 2020 to simply above 20% in 2026, based upon the very first 9 months of each year.

A warming environment can wear down some of that defense. Heatwaves and dry spell contributed to the rate pressures from the dispute. Electrical power need increased as individuals and services relied more on a/c, while low water levels minimized hydropower and restricted cooling water constrained nuclear capability. Together, these aspects rose wholesale electrical power costs and minimized the capacity for eco-friendly and atomic energy to cushion greater nonrenewable fuel source costs.

The heat did not strike all source of power similarly. Throughout the heatwaves, solar was the only significant power source to carry out much better than normalSupply was tightest and costs greatest at nights, when solar output fell however need for cooling remained high. This indicates the requirement for a more integrated and versatile energy system, able to move inexpensive solar energy to where and when it is required.

3 concerns for Europe

Europe’s action requires to resolve both the direct hit and the energy channel.

As severe weather condition ends up being a routine function of our summer seasons, Europe needs to proactively prepare and be much better safeguarded versus its monetary fallout. The Commission’s EU Framework for Climate Resilience provides a systemic reaction to increase environment defense throughout all significant policy locations, enhance the schedule and use of information and produces a chance to take forward a proposition by the ECB and EIOPA to increase environment insurance protection with an EU-level public-private reinsurance plan

Second, Europe requires a power system that maximizes inexpensive, home-grown tidy electrical energy. The Commission’s Electrification Action Plan appropriately intends to double electrical power’s share of last energy usage by 2040, however this will just settle if grids and storage keep up. Each euro bought updating the grid conserves more than EUR2 in other system costsand storage would assist bring inexpensive solar energy into the nights, when heatwaves strain supply most.

Third, as constructing out the grid will take some time, Europe must make it simpler for companies to provide themselves in the meantime. Factories are installing their own photovoltaic panels and batteries to cut expenses, and with brand-new grid connections taking in between 2 and 10 yearsinformation centres are bringing their own generation and storage. Typical EU guidelines might let companies with their own “behind-the-meter” supply, produced and saved on website, link quicker in return for supporting the grid when it is under stress.

Much of this financial investment will need to originate from the economic sector. Finishing the cost savings and financial investments union and keeping a steady environment policy structure, consisting of carbon rates, would make it more affordable to fund.

The COP31 top in Antalya, which starts next week, is a chance to turn aspiration into action on a worldwide scale. This summer season will not be the last of its kind. Severe heat will return more frequently and with higher force, and its expenses will fall hardest on those least able to bear them. Europe has the methods to restrict the damage, and we owe it to the generations who will cope with these summertimes to utilize those methods now.

Have a look at The ECB Blog and subscribe for future posts.

For subjects associating with banking guidance, why not take a look at The Supervision Blog