Next, big ECB rate hike could cause unjustified damage to the European economy, warned the governor of the Bank of Greece, Yannis Sturnaras.

The ECB raised interest rates by 75 basis points for the second consecutive time in October, but Mr. Sturnaras supported a 50 basis point increase, he indicated in an interview with Politico.

As he said after the October meeting, the Eurozone is facing a supply-side shock that monetary policy has little influence on. In his interview, he notes that while the surge in inflation to a record 10.7% can be seen as an argument for aggressive tightening, the recent drop in energy prices nonetheless supports lower inflation forecasts and a slower pace of interest rate tightening. “My personal feeling is that inflation next year will be below the 5.5% projected in our base case,” he said.

An overly aggressive monetary policy could hurt the economy, he stressed in an interview.

At the same time, the head of the Bank of Greece stressed the growing risks of a recession in the euro area. “The energy shock will cause a recession. “Weakness in Europe, as well as in the US and around the world, will lead to a further reduction in demand,” he said. “Risks are growing that the Eurozone will be plunged into recession,” he said, citing a range of data including slower growth in the third quarter and a sharp decline in business sentiment polls. And “if the war continues, I see no reason for the economy to recover,” he added. As for Greece, the negative scenario of the Bank of Greece does not predict a recession in the country next year. Mr Sturnaras stressed that the outlook for the Greek economy remains strong and while the central bank had expected growth of 3.2% this year, it is revisiting it to 6% on stronger tourism revenue. As he noted, Greece is expected to outperform the Eurozone in the coming years.

The Greek central banker also urged the EU to do more to help bring inflation down. “In the current environment, monetary policy alone cannot cope with the current rate of inflation,” he said. “It would make the cost in terms of production much higher.” “If we want to bring inflation down without much damage to financial stability and without skyrocketing interest rates, monetary and fiscal policy cannot move in the opposite direction,” he said.

Mr. Sturnaras also suggested speeding up work on the transition to a new electricity pricing system. According to the CE Governor, Europe could price electricity based on the average price of all fuels used to generate electricity. Such an approach would lower energy prices and overall inflation.