Europe faces triple test of defence, energy and productivity
Bank of Finland Governor Olli Rehn told an OMFIF symposium in Bangkok that Europe must pass a triple test on defence, energy and productivity. He named geopolitics and climate, AI valuations and public debt as the main risks.
Twenty-seven mattresses
Rehn calls it Europe's triple test: defence, energy and productivity.
Europe must take more responsibility for its own security as the European pillar of NATO, though progress is uneven among member states.
It must cut its dependence on imported fossil fuels through investment in renewables and nuclear power.
For productivity, the Draghi report sets the roadmap: completing the single market, cutting red tape and investing in innovation and human capital.
Europe has the savings but lacks deep, liquid markets: “Our savings sit in twenty-seven separate mattresses.”
He urged completing the Savings and Investments Union without delay and said a common safe asset has a strong case on market and financial stability grounds, though the decision is political.
Three risks and an energy shock
In the European Systemic Risk Board, Rehn sees three groups of risk: geopolitics and climate, a sharp correction in concentrated AI valuations and high, rising public debt in advanced economies.
The war in the Middle East has pushed up energy prices and inflation, which is above target mainly due to energy.
He saw no sign of second-round effects so far, while growth is relatively solid on defence and infrastructure spending.
On trade, the EU concluded a deal with India, signed one with Australia and reached an initial deal with the Philippines in September.
Homework for finance ministers
The diagnosis is sharp: Europe has the savings but not the market to channel them.
Yet the remedies, a completed Savings and Investments Union and a common safe asset, sit with governments rather than central banks.
Rehn's triple test is therefore mostly a list of homework for finance ministers.