Rehn urges common European safe asset to fund strategic investment
Bank of Finland Governor and ECB Governing Council member Olli Rehn called for a common European safe asset to fund defence, energy and productivity needs. Speaking at the OMFIF Nordic SSA Forum, Rehn stressed that joint debt would overcome capital market fragmentation.
Three fronts and twenty-seven issuers
The euro area faces a severe energy shock after the closure of the Strait of Hormuz trapped one-fifth of global oil and LNG exports.
While inflation had stabilized at 2.0 percent earlier in the year, the geopolitical disruption prompted an interest rate increase in June before policy rates were held steady in July.
Addressing this environment requires meeting a strategic triple test across defense, energy and productivity.
Europe currently finances investment through 27 separate national sovereign issuers alongside distinct supranational programs.
In contrast to the $30 trillion US Treasury market, Europe's public debt pool is roughly one-third that size and remains heavily fragmented across national borders.
Overcoming the supranational penalty
German government bonds currently serve as the primary safe benchmark, but supply remains structurally constrained.
Furthermore, EU debt is classified as supranational rather than sovereign, excluding it from major sovereign bond indices.
An OMFIF survey shows that 55 percent of global public investors would increase euro holdings if the EU issued debt permanently at scale.
Developing a genuine European safe asset requires stable own resources, democratic oversight and sound national fiscal discipline.
Economically sound, politically stranded
Joint debt issuance makes economic sense for capital markets, but fiscal mutualization remains politically toxic across northern capitals.
Member states will not guarantee collective liabilities without intrusive budget controls that Brussels cannot enforce.
Without treaty reform, the common safe asset will remain an unfulfilled blueprint.
Source: Back to school - passing Europe's triple test
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