The euro zone economy is holding up amid global turbulence but its rate of expansion is modest and decisive policy shifts are needed to revive the bloc, European Central Bank policymaker Olli Rehn said on Friday.
European growth has positively surprised this year, fuelling arguments that it may be able to withstand shocks better than feared, much like during the pandemic.
“The European economy has shown remarkable resilience,” Rehn said in a speech at the Peterson Institute in Washington. “But — and this is the key ‘but’ — resilience is not the same as dynamism. Our growth is steady, but rather modest.”
Rehn singled out joint defence spending as one of the keys to turning resilience into the sort of dynamism needed to strengthen the global role of the bloc and the euro currency.
More spending on defence, a crucial need given Russia’s war in Ukraine, is an investment in innovation, industry and resilience with technological spillovers, he said.
But joint spending could also create a crucial financial pillar for the bloc, too.
Issuing debt together will provide the euro area with a deep and liquid safe asset, needed by a host of investors who are required to hold such assets on their balance sheets.
“That would help integrate our capital markets and give the euro a genuine benchmark — comparable to U.S. Treasuries,” Rehn, Finland’s central bank chief, said.
He also stressed the need for completing the long-stalled saving and investment union and the role the digital euro would play in financial sovereignty.