Frankfurt: Sintra was never meant to be like this.

The European Central Bank’s annual forum in the lush Portuguese retreat outside Lisbon, which starts Monday evening, was intended as a laid-back event where central bankers and academic economists can thrash out the theories of monetary policy. Instead, reality has intruded once again, this time in the form of the UK’s shock decision to leave the European Union.

The pain of the British vote, from the market ructions already under way to a possible economic hit to come, threatens to blight the euro-area recovery that ECB President Mario Draghi was counting on after two years of unprecedented easing. It has already disrupted the Sintra forum’s high-profile guest list—Bank of England governor Mark Carney and US Federal Reserve chair Janet Yellen will no longer go— and while Draghi will still attend, he may be pre-occupied with considering whether his crisis-era policies need to be stepped up again.

“The ECB will probably be able to wait and see for some weeks," said Frederik Ducrozet, an economist at Banque Pictet & Cie in Geneva. “But the horizon for the end of unconventional policies has receded."

Missing Carney

Carney pulled out on Sunday and Yellen was dropped from the schedule on Monday. Both had been due to join Draghi in the highlight of the forum—a panel discussion chaired by Draghi’s predecessor Jean-Claude Trichet to wrap up the event on Wednesday. The ECB hasn’t yet said who will replace them.

Other speakers include former Fed vice chairman Alan Blinder on Monday, and former BOE policy maker Charles Goodhart on Wednesday.

Central bankers united immediately after the result of the British vote. The Group of Seven nations issued a joint statement on Friday pledging liquidity measures, and central-bank executives were at a scheduled meeting of the Bank for International Settlements in Basel over the weekend. BIS general manager Jaime Caruana said he is “confident that uncertainty can be contained."

It’s becoming a familiar theme that the ECB Forum, started two years ago as a European version of the Fed’s Jackson Hole symposium, sees its intellectual musings overshadowed by more-immediate policy concerns. In 2014 it was the imminent introduction of negative rates and asset purchases in the euro area to fend off the threat of deflation, while in 2015 the Greek debt crisis took center stage.

False dawn

This time, Draghi had reason to hope Sintra might be the occasion to celebrate the first signs that his policies are starting to bite. He said this month that the conditions were in place for consumer-price growth to return to the target of just under 2% in the “not-too-distant" future, after more than three years of falling short.

Analysts questioning whether the ECB has done enough with its three-pronged stimulus of negative rates, long-term loans and a 1.7 trillion-euro ($1.9 trillion) quantitative-easing program might find that Brexit has provided the answer.

Market bets show the probability of a cut in the deposit rate at the next policy meeting on 21 July have jumped to about 50%, from less than 20%. That rate is already at minus 0.4%.

Unsurprisingly, bets on a BOE rate cut in July have also surged. Carney said on Friday that the central bank will “consider any additional policy responses" that are necessary. The question at the Fed is whether the gradual path of tightening it started late last year has already come to a halt.

Populist demands

Draghi may use Sintra to repeat his standard line that he’ll do what’s needed to revive euro-area inflation, and that governments must act as well. But the financial and political headwinds to achieving that goal are now substantial.

ECB bond purchases may run into scarcity problems in some countries in 2017, and further rate cuts could squeeze banks’ profitability to the point they throttle credit. Draghi’s key tool of Outright Monetary Transactions, unlimited purchases of the debt of the weakest economies as long as they sign up to a reform program, is unlikely to appeal to governments fearful of a backlash. Populist leaders in France, Italy and the Netherlands have already shown a desire for their own referendums.

“Brexit makes it less likely that a ‘whatever it takes’ response is going to be effective," said Daniel van Schoot, an economist at Rabobank in Utrecht, the Netherlands. “It will embolden anti-political movements and this could affect yields in the periphery, something the ECB may have to act upon. The fact is that now politicians may not be willing to comply with reform requests as part of the OMT programme—and thus tie the central bank’s hands." Bloomberg