October 22, 2025 • 41 mins
The 2010s saw economic weakness across Europe's periphery. Countries like Greece, Spain, Italy, and so forth were the sites of so much stress. In the 2020s, however, it's reversed. The periphery is holding up well, but the industrial core is facing stress. Germany, in particular, the old powerhouse of the continent, has been slammed by the surge in electricity costs and competition with China. Other Northern states have felt similar pain. So what is the future for Europe? Can the EU project itself continue to evolve and integrate? On this episode, we speak with Olli Rehn, governor of the Bank of Finland and a member of the ECB's Governing Council. We discuss the near and medium-term challenges facing the EU and the prospects for finding a robust growth path in the future.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:17):
Hello and welcome to another episode of the All Thoughts Podcast.
I'm Tracy Alloway.
Speaker 3 (00:22):
And I'm Joe Wisenthal.
Speaker 2 (00:23):
Joe, do you remember earlier this year there was a
moment when everyone got really excited about Europe for the
first time in probably decades.
Speaker 3 (00:33):
So, you know, I always think about is for the
two of us for a long time of our careers.
One of the many sub themes that we go it's like,
when is the Europe going to turn on the fiscal taps?
When did you start spending money in Germany? All these questions,
when are they going to be less so focus on
austerity or balanced budgets, et cetera. And then finally, and
(00:53):
maybe Trump had something to do with it, and defense
spending had something to do with it, or politics, it's
finally we're getting spending. It was like five minutes and
everyone was really excited about some of the defense docks
and the Euro's raillying and it looked, you know, a
little bit more politically stable perhaps than the US. What's happening, though,
I like, how's that going? I'm not sure I followed
it as closely as I should.
Speaker 2 (01:12):
Have I will say, I mean, the Europe is still
pretty strong against the dollar, and if you look at
the eurostocks that's still doing pretty well as well. So
there is some optimism that is still circulating the market.
But you're absolutely right, we should talk about what this means.
What does it actually mean for Europe to quote unquote
seize this moment, right, this very particular moment, and what
(01:33):
exactly does Europe want to achieve totally.
Speaker 3 (01:35):
And you know, a lot of the conversations that we
have in the US context certainly apply in the European context.
So industrial competition with China, whatever we're feeling here in
the US, certainly very heightened anxiety in Europe with the
stress on the auto industry and the chemicals industry and
so forth. Energy prices, obviously, electricity costs in the US
(01:55):
becoming a major topic, et cetera, just as big in Europe,
if not big or especially in the wake of the
Ukraine War, the shutting off of the nuclear power plants
in some countries, et cetera. So pretty much everything that
we're sort of wrestling with here, the right.
Speaker 2 (02:09):
The sort of productivity regulation.
Speaker 3 (02:12):
The splintering of the traditional parties within domestic politics. Our
parties have a bit more of a monopoly than the
European ones do, but there's similar stresses going on. So
anything that we're talking about here, it's very useful to
see how it comes across from the European line.
Speaker 2 (02:28):
Absolutely, so I'm very happy to say we do, in
fact have the perfect guest we're going to be speaking
with Aliren. He is, of course the governor of the
Bank of Finland. He is also a governing council member
over at the ECB. So Ollie, thank you so much
for coming on our thoughts.
Speaker 4 (02:42):
Thanks very much for the newittation. Great to be here.
Speaker 2 (02:45):
So from your seat in Europe, Wait, where are you
actually based in Europe? Where do you spend most of
your time?
Speaker 4 (02:51):
I have a do on life, not schizophrenic, do a life.
I have two home fields, two home terrans. One is
Hesink Finland. The Bank of Finland is the Central Bank
of Finland. But we also at the same time we
are member a member of the Eurosystem and my second
home terranist Frankfurt and the Governing Council of the ECB.
(03:11):
And the same goes for the large part of our
civil servants. Economis and lawyers at the Bank of Finland
like in the other nineteen national central banks. That's the
eurosystem perfect.
Speaker 2 (03:23):
So from your seat in Helsinki and Frankfurt, does it
feel like something's changed within Europe? Does it feel like
there is the sense that maybe the current time period
is some sort of opportunity.
Speaker 4 (03:36):
Certainly things have changed in Europe a lot for the
verses we know because of Russia's unjustified brutal war in Ukraine,
but second as a wake up to that situation, including
the impact of President Trump as well. And I would
say that if you look at the Europe for the moment,
we have one issue which is above others, and that
is common defense and spending on common defense, from air
(04:01):
defenses to drone production and other elements of military technology
and production. And that's also very much an economic issue. Actually,
it's a finest opportunity in a sense that the best
argument for safe assets in Europe is in the defense spending.
We need both national and European funding. This is, in
(04:23):
my view, a possibility to pave the way for a
deep and liquid European capital market.
Speaker 3 (04:29):
That's great, I'm glad you jump right into this question
of further integration and some of the stakes here, particularly
as it relates to defense, because this has been something
that's been on my mind a lot, and I wanted
to get in with you. When we think about industrial
capacity or think about industrial competition, scale is really important.
The size of the market is very important, and this
(04:51):
is part of the whole premise of the euro Area,
which is, let's have an integrated market. And yet, on
the other hand, domestic politics are still a thing I
have to imagine in defense specifically, there must be a
lot of anxiety at each individual country. Do we want
our national maker of X rolled up into some larger
(05:11):
conglomerate to what degree, whether we're talking about defense or
other any other industrial any other industrial sector, does there
still remain attention between the scale required for competitiveness and
the desire for some sovereignty within each country to have
their maker of X or y.
Speaker 4 (05:32):
Yes, there is that tenstone. But that's why we do,
we make policy, and that's why we try to change
things in Europe. Actually, that brings to my mind an
anecdote concerning precisely common defense. How things have changed. Okay,
the country I know best, Finland in NATO in April
twenty twenty three, and I recall my own time in
(05:55):
military service in the early nineteen eighties in the SUBBA
Brigade in eastern Finland, in the city which used to
be the headquarters of US and manner Him during the
Winter War. Today that garrison area is actually a regional
sub headquarters of NATO. So you see the change in
(06:16):
terms of defense in dissic caard in northern Europe. Talking
about economies of scale, yes, we lack a genuine single
market in many areas like services and to some extent capital,
and that's why we are very committed to move forward with,
for instance, the Savings an Investment Union, which aims at
(06:37):
transforming the formidable savings of Europeans ten trillion. That's the
estimate to productive investment by some kind of say popular capitalism. That's,
in my view, one essential element of creating a more
unified Europe and creating a more competitive Europe.
Speaker 2 (06:57):
The other thing, when it comes to building up a
fence industry that is sometimes debated is this idea of
should you spend money on investing in defense programs or
should you spend money, you know, buying the products that
these defense companies are actually producing because what's the point
of building out this massive capacity if you don't have
(07:17):
a dependable customer for the foreseeable future. How would you
structure that sort of spending to make sure that it's durable,
I guess and effective.
Speaker 4 (07:28):
That's a very critical question in the European context, and
that's why as we are conducting joint European funding exercises
in this like the one hundred and fifty billion euro
Safe Instrument by the European Commission, it's a sense that
we purchase those arms and arms technologies by common procurement
(07:52):
and by investing in joint research and innovation projects. That's
the way to get more bank for the euro and
that's now the effort which the European countries and the
Commission are engaged with. In fact, it is clear, it's
quite clear that we are going to in Europe. We
are going to purchase both say domestic European products and
(08:14):
also American products. In some areas the US is more advanced.
For instance, Finland is purchasing sixty four if thirty five
to replace our existing fleet of sixty four eighteens which
date from the early nineteen nineties.
Speaker 3 (08:30):
How costly is it I guess, to put it bluntly,
I don't know that the US is not the reliable
trading partner it might have seemed to be. I mean,
I know there's still a lot of trading you just mentioned,
you know, replaced the plain fleet, et cetera. But clearly
we all read the news, we all know what's going on.
How costly is it for Europe? And do you perceive
there to be a lot of frankly unnecessary duplications of
(08:55):
investment efforts across the Atlantic currently because of trade tensions.
Speaker 4 (09:02):
We do expect that, and that's having a negative impact
on productivity and thus on the economy, growth and well being.
As far as the impact of US tariffics is concerned,
we have tried to estimate that. It's a bit difficult,
as policy making is fairly volatile, so it depends on
the day or the week when you take the cutoff data.
(09:26):
You know that perhaps, But our estimate, which is roughly
done on the basis of the current US study PHRASEM,
is that it will hit growth in the Eurozone roughly
by half a percent its point next year. But the
good news is that the European economy is actually demonstrating resilience.
(09:46):
We are still growing this year, probably around one person
or so one point two percent, and we are projective
to grow by one point three percent in the next
two years despite the headwinds of geopolitical tensions and thirty
for wars.
Speaker 2 (10:03):
So you wrote something for Vox a few months ago
called Europe must not Waste its currency moment, and you know,
reading it, it sounds very much like there's perhaps an
ambition to maybe replace some of the influencer, some of
the global role of currently fulfilled by the US and
the dollar with the Euro. Is that how we should
(10:25):
be reading it? Is there like a conscious effort underway
currently to expand the Euro's influence in the world.
Speaker 4 (10:34):
There is a deliberate, conscious effort to enhance the Euro's
global role in the currently changing international monetary system. And
if I put the background first, I think you're seeing
the interestional monetary system or the global financial system in
transformation for the moment, and you have two main drivers
(10:58):
in broad sense. On one hand, the geopolitical confrontation and
on the other hand, we have a technological disruption thanks
to digital assets, stable coins, central bank digital currencies. How
this will play out will be quite crucial as to
the evolution of the monetary system. Concerning the geopolitical competition,
we see China's efforts to strengthen the role of remimbiod
(11:22):
or the yuan, for instance, with the rodent built initiative
and linking trade agreements to an enhanced roll of the yuan.
And there is a major but there are still capital
controls in China, and there is no legal certainty in
China in the western sense, so that creates quite significant
(11:44):
limitations for the Remember, in the technological site, we've seen
the growth of stable coins. More recently, we've seen certain
volatility of cryptos last week, classified days just a little yes,
And for instance stable coins, they are clearly intended to
increase demand for US treasuries to feel the federal deficit
(12:06):
of the United States of America and thus to enhance
the roll of US dollar and US dollar dominance. I
believe that on the basis of historical experience, let's say,
for instance, by the writings of Professor Barry ahen Green
of the Berkeley that historical shifts in the international monitary
system take place slowly and on the basis of the
(12:28):
structural chances in the economy and security structures. That's why
I believe that US dollar dominance will prevail for quite long,
perhaps less as a single unipolar hegemon in the monetary
system than before, and we may move towards a more
multipolar monetary system and their Europe can have a significant
(12:52):
reserve on the condition that we can strengthen the foundations
of the European economy in security, in terms of economic dynamic.
In terms of.
Speaker 3 (13:05):
When it comes to economic dynamism, people are pretty pessimistic
about Europe these days. They look at an industrial sector
that is maybe being hobbled by a competition with China.
They see the country, the various countries is not being
at the forefront of the AI investments with tech in general,
(13:27):
there's a perception that the economies are still overregulated, it's
not a great place to have a startup and so forth.
What is the sort of the Bowld case or maybe
the sales pitch for sort of the euro inc the
European economy, where does growth come from in the dynamic
durable manner.
Speaker 4 (13:47):
There is a Wybrant stop community for instance in Finland.
Speaker 3 (13:51):
Finland is actually Finland's probably the exception you do hear
about finished startups speed credit.
Speaker 4 (13:56):
In France, many other We actually we have a vibrant
startup community in Europe. By the way, welcome to Slush,
even though I'm not the organizer, but Slush is the
well known major conference in inheriting Ky.
Speaker 3 (14:12):
We love to come to November. Introduce us next the
major we love to come.
Speaker 4 (14:17):
That's the major startup that found great global startup even
since early twenty tens. Okay, it's good to know the
name Slush comes from November because you have so much
slash in November. So that's why it's for slush. But
it's a very bright event in the darkest.
Speaker 3 (14:34):
Why it goes into the saunas the rest of the
time to get out of the slush.
Speaker 4 (14:38):
Yeah, well I do it twelve months per year, a
few times per week.
Speaker 3 (14:41):
Sounds great, not bad, not bad.
Speaker 4 (14:45):
But even more seriously so, we have startups, We have
some unicorns. But the general challenge in Europe is that
in the scale up phase, many companies choose the US
a Silicon Valley or or New York Stock Exchange or
combination of both, because it's easier to get winsor capital.
You have a large market which is culturally fairly similar,
(15:06):
even though there are certain differences between California and think
California and yeah, say South Carolina, right, yes, Okay, So
in any case, it's the scale of phase and internationalization
phase where we have to do better. And that's why,
for instance, our government's efforts to enhance growth in Finland
(15:27):
are films focused on funding of scale ups and growth companies.
Speaker 2 (15:47):
So when I think about a business being competitive, especially
in the areas that people seem to be very excited
about nowadays, things like AI data centers, I guess defense nowadays,
I think about one aspect of competitiveness is price right,
and if your input costs are higher than a lot
of other people, then you're going to struggle to provide
(16:09):
these things at a low cost. And in Europe the
big input cost that people seem to struggle with is energy. Right,
How in the world does Europe start to compete in
terms of global competitiveness with energy prices so high? And
what can you do about it?
Speaker 4 (16:27):
We have to go back. I have to go back
to Finland metaphysically, mentally now again because we have an
x number of data center investments coming in Finland, mostly
with foreign direct investment thanks to the combination of relatively
inexpensive electricity and relatively cool climate, which is conducive for
(16:49):
data centers. So in that sense, there are differences within
Europe as well. The key is very much to continue
the green transition with consistency. For the moment, still, countries
like Germany are suffering from higher electricity and energy costs.
That is true largely because Germany was so dependent on
(17:13):
Russian fossil fuel, especially because its energy intensive chemical and
other industries who have been so dependent. But the green
transition is moving forward. We lean much more on renewable
energy than before. Of course, energy efficiency and smart electricity
systems play also a key role here, and I would
(17:36):
expect that this green transition will be I mean not concluded,
but will be very far by the end of this decade,
so that we have a much more competitive condition in Europe.
In this card, I had one thing. Often, when you
compare fossil energy and you compare you compare fossil energy
(17:56):
to say, renewable energy. The capital costs in renewables are
often higher, like say investing in wind parks or solo energy,
but the running costs are quite low. Meanwhile, in fossil
fuels it's often let's say the reverse, or that the
capital costs sign not that's huge, but you have very
(18:18):
significant running costs. So once you are far enough in
the green transistion preferably supplemented by nuclear enocy in my view,
than our cost competitiveness in terms of energy will also
be what's better.
Speaker 3 (18:32):
It sounds like the solution to some of what l's
Europe is that everyone needs to be more like Finland.
Sounds like you guys haven't figured out and everyone else
in Europe needs to be more like that.
Speaker 4 (18:43):
No.
Speaker 3 (18:43):
For really, when it comes to broad like like industrial pressure,
can you like attribute and maybe this is more of
a German specific question, but I think it probably applies
more broadly. Is it possible to decompose the degree to
which competition with China, especially things like chemicals. China's very
competitive chemicals, though it doesn't get much attention obviously, cars
(19:07):
globally is just a huge story when you look at
like sort of the sputtering out of industrial production in
Germany or just you'ree More broadly, it's possible to decompose
how much of it is undercutting on price from China
versus the higher costs that have surged particularly since early
twenty twenty two.
Speaker 4 (19:24):
Wells, it is possible, but I don't have the figures
of the cuff. But I recall that in twenty twenty two,
which was the high point of energy costs in Europe,
So we calculated with a friend of mine, and then
we verified that by our economists that year Europe paid
eight hundred billion euros for fossil fuels instead of the
(19:47):
long term average of three hundred So we paid five
hundred six hundred billion euros more that year, which then
was roughly three percent of CDP. So in twenty two
we had you can say that it was kind of
an extra tax over every European of three percent of
(20:10):
the income on average, which of course created quite a
lot of popular opposition and criticism. Fortunately we have been
it's not actually about fortunate, it's about political will and action.
We have been able to broadly adds to the end
of Russian gas in Europe, but we still have some
(20:34):
work to do in many countries. You mentioned Germany. Germany
still has a work to do in order to reduce
its en itsy costs in its industrial production.
Speaker 2 (20:44):
If you could waive a magic wand and do one
thing to boost European either productiveness, productivity or competitiveness. Basically
make all of Europe more like Finland. What would it
be other than installing saunas and everyone's house that's a
good idea actually even though fairly electricity.
Speaker 3 (21:04):
Let's not hope it would be energy.
Speaker 4 (21:06):
Depending depending if you use electricity or would in heating.
I have both in the summer credits. Its would by
the way, most seriously, most seriously, if I could do
one thing, I would complete the single market without the
delay and also create a genuine savings and Investment Union
(21:29):
with a deep and liquid capital market, because this would
help address the challenge of venture capital and financing of
European startups and growth companies.
Speaker 2 (21:39):
What would it do? What would that sort of cohesive
market do that you can't do right now at a
national level? Would it just lower capital costs for everyone?
Speaker 4 (21:50):
Or for instance, concerning the Savings and Investment Union, you
have actually a long list of concrete decisions that it
will require. But the key things are in many ways,
to have a safe asset, a European safe asset, which
would facilitate the creation of genuine European capital market. And
(22:11):
then in addition to that, there are quite reasonable proposals
of creating either tax incentives or other decisions that encourage
people to invest, people meaning individual citizens and households. Sweden
actually is a very good example of this, so that
in Sweden, for instance, you have a certain portion of
(22:33):
your retirement payments that you have to invest to the
stock market or funds oh I see yeh, which has
helped to create a culture of investment in Sweden. And
we are actually even though Finland was mentioned as a
role model, but we are benchmarking in Sweden in basic
card because they have the most vibrant to answer capital market.
(22:55):
Also thanks to this quite well functioning capital market.
Speaker 3 (22:59):
It makes total sense that you know, I think of
the Euro Area of the whatever version of it we
want to talk about, is it's an ongoing project. It's
always a work in progress. It will probably never be
completely finished. There's always more to do. But this to
my mind gets to the sort of like the challenge
(23:19):
of domestic politics, right and like we also see what's
happening here. We're October sixteenth, our government is shut down.
But it feels like various versions of this stress are
replicating themselves across the sort of rich developed Western countries. France,
their government always seems to be like two weeks away
from collapsing. Who knows if they'll have a government. I
(23:40):
don't know if Belgium has a government these days. I
think the Dutch have an election coming up. Who knows
what's happening there. If you look at polls in Germany,
we all know that parties like the AfD, which are
in a very different trajectory, are doing very well in
the polls there, etc. Like how much of the Yeah,
it's great to say, like people here in d C
(24:01):
these conferences and here Bloomberg, I love the idea of
like integrated market, but how much is the roadblock that
you foresee to get to where you want? Essentially the
reality of domestic electoral politics in each of the member countries.
Speaker 4 (24:16):
It's a continuous silence. And you're right. So when you
said that Europe or the European Union or Eurozone is
a community or community of states that is in constant movement,
I would wish that it would be in a more
rapid movement, but it is indeed an unfinished business and
will continue to be. So that's why it is actually
so so fascinating and meaningful to work for Europe on
(24:39):
these two brief points. First, the political battles or the
political competition of the souls of the people are done
in Europe in the member states. Yeah, national politics are
key here and that's why I have a high regard
for national politicians who face this silence in the town
(25:00):
hall meetings and in the social media or elsewhere, and
of course in terms of policy making. So we have
to be able to do such concrete policies that help
alleviate the concerns of the citizens and both sustainable growth
and sub creation in Europe. That's the essence. Second comment
is that it's quite interesting that even though we have
(25:20):
had and continue to have populist movements challecing say, the
most interested parties in almost all countries of Europe, still
the European Union is holding together and it is structurally
kind of it's.
Speaker 3 (25:34):
Still fairly popular, isn't it. Like actually the Pole still
showed a fair amount of popularity of these like multinational
it is.
Speaker 4 (25:41):
It is for instance, in France, the right wing party
Aaron has torn down its criticism concerning the Europe in
recent years, and Europe, or in this case, the European
Union works as a glue that helps to keep together
the policy making structure of Europe. So in that sense
(26:02):
it has a certain impact, kind of second level reverse
impact on domestic politics as well. Quite illustrative is that
in Finland on Monday, after many years of his cousin,
we were able to agree or the eight parliamentary parties
were able to agree on a long term commitment to
balance the budget and depth anchor, which is historic and
(26:26):
it is also respecting the EU of his car rules.
Even the parties that have been quite critical on Europe
are part of this agreement, which in my views actually
quite encouraged.
Speaker 2 (26:53):
Earlier this year everyone got very excited about Germany finally
wanting to spend right. We weren't going to be terrized
by the Black Zero, the Schwartz and Nule forever. Do
you get the sense that things are changing in other countries,
because again here in the US, the headlines we see
for a place like France is worries over the deficit,
(27:14):
political I don't want to say incoherence, but certainly a
little bit of political chaos. Does it feel like all
of the Eurozone is becoming more comfortable with the idea
of spending for strategic purposes at this moment in time,
or is it primarily still Germany.
Speaker 4 (27:31):
It is primarily maturity of other member states. But you
are right, there is a certain variety of concerning the emphasis,
and Germany plays a key role here. The decisions of
the German government and in fact German government and opposition
earlier this year are now taking effect. They abuceatory laws,
(27:51):
so they will be implemented. That's critical. But so other countries,
like all the Nodics. The Nordics together are twenty seven
million people and relatively worth the area in the globe,
and all the noted countries are expanding their defense expendits significantly,
so all the Eastern European countries and several over the
(28:15):
Western European countries. So overall, the pictories I would say encouraging.
I don't sought for victory yet, but we are on
the right road here.
Speaker 3 (28:26):
You know, it's really great to have you on the
podcast because both Tracy and I covered the Eurozone crisis
of the early the first half of the twenty tens
quite intensely. There are numerous headlines that you would make news,
and I saw your name and numerous headlines over time
and maybe next time you come on, I'd love to
just like do an hour and just talk about that time,
(28:46):
provided we don't want to give you like euro crisis, PTSD, etc.
But I do have one, you know, I have really
good questions about what that time was really like. But
I was talking about this as someone last night, you know,
as the crisis metastasized over time and always were going
to introduce a new bailout fund and I forget acronym
after acronymiah, that's like, yeah, all the acronym soup.
Speaker 4 (29:09):
Yeah.
Speaker 3 (29:09):
But then the crisis ended essentially on the day that
Mario Dragi said that sovereign spreads were an impediment to
monetary transmission, and once he said that closing spreads were
sort of mandate consistent with the ECB, from then on everything.
Speaker 4 (29:23):
So that was it.
Speaker 3 (29:24):
That was the moment that the crisis really turned. Couldn't
that have happened a lot earlier? Was there a lot
of unnecessary pain that was incurred in Europe because it
took so long to sort of get to the point
that the ECB could find a way that it was
within its remit to close spreads.
Speaker 4 (29:43):
I think it's a legitimate question and I've been thinking
about that quite a lot. I have actually answered to
this question in my book quote Walking into the High
Wire uter Zone Crisis. In fact, that it is through that.
Once Mario said now let's send our reverts takes within
our mandate UH to save the Euro, then the animal
spirits that was it turned around and the market started
(30:06):
to believe that the easy b is functioning as the
central bank must function as the lender of last resort.
Speaker 3 (30:13):
That was the moment centralment central.
Speaker 4 (30:18):
Yeah, that's right, that's right, and that's why before that
it was kind of incrementalist firefighting. This was not without
value because we were able to keep the Euro a
float and support many countries Greece, Portugal, Island, Spain with
the funding of the European Stability Mechanism or its precursor.
(30:39):
In fact, now the countries that then the then we're
in the EU I m F programs have been in
the past years. They have been one of.
Speaker 3 (30:47):
The best performance in everything, totally flipped since the twenty tens.
Speaker 4 (30:54):
So they have reformed their economic structures to a lots
extent and they are much more competitive for the moment,
and their public finances are on his own basis, But.
Speaker 3 (31:03):
There were years of pain in Greece and particularly Italy
as well, like truly, like like incredible economic damage and
by some measures they would say, like on par with
the Great Depression in the United States? Could Europe have
gotten to that point? Could Mario Draggy have given the
whatever it takes speech in two thousand and nine? Did
it have to wait as long as it did? And
all these other mechanisms have to try first?
Speaker 4 (31:25):
Mario drague Is started as ECB president in November two.
Speaker 3 (31:29):
Well, you're right, so there's no way he could have
given the speech in two thousand and nine. Could Jean
claud Trichet have given the speech in two thousand and nine?
Speaker 4 (31:36):
You have to ask him. But I think that's my.
Speaker 3 (31:39):
Point is did it did all?
Speaker 2 (31:41):
Could they have moved faster?
Speaker 4 (31:42):
Did?
Speaker 3 (31:42):
Were all of these steps necessary in which the before
the ECB as an institution got comfortable with its role,
that it would be much like the FED and other
central banks, some sort of backstop or lender of last resort?
Did there all? Did everything else need to be tried first?
Speaker 4 (32:00):
Like I was talking to my wife in the sauna
during the Eurozone crisis from two thousand and nine onwards,
so pretty much I share your you and if you
take more. It's a historical view of that. So when
the Euro was created, then the kind of majure event
like the Eurozone depth crisis was not perceived apparently in
(32:22):
the mindset the creators of the Euro, because there was
no stability mechanism like the IMF. The European stability mechanism
is the IMF in the European context. Actually, the sm
has more capital than the IMF total capital, so that
was not in existence when the crisis hit. We had
to create in the run on the flight. And the
(32:44):
second problem was that among the economists there was much
discussion about whether the Eurozone or the Economic Monetary Union
is an optimal currency area, but macroeconomic imbalances and finances
stability is used. We're kind of forgotten at the time
from focus also in the economists community. I think that's
(33:04):
something that deserves some self criticism among the economists as well.
Speaker 2 (33:09):
We have to do an episode just about the Eurozone
crisis at some point, but we can't do it right now.
So just our five minutes left, in our five minutes left,
so just going back to the start of this conversation
which was about you know whether or not this is
a moment potentially for Europe. If Europe doesn't, the Eurozone
(33:30):
doesn't successfully mount some of the changes that you've discussed,
if it wastes this current opportunity, what's the most likely
path for the block as a whole. And then secondly,
how would you know that Europe has kind of achieved
this global success? Are there things that you look out for?
(33:50):
Is it share of currency used in global trade or
something like that.
Speaker 4 (33:55):
Well, first, what's the miser or what's the yardstick of
measuring success of say European economic policy. I think fundamentally
that is the well being of European citizens and say freedom, entrepreneurship,
well being, also social protection of europe as access to sunances,
(34:16):
that's a basic human rights are essential civil liberty.
Speaker 2 (34:20):
My mom had a sauna when she was in Estonia
and it was amazing.
Speaker 4 (34:24):
That's to the second part. But then the first part,
what if Europe won't be able to do the necessary
things in order to become stronger in terms of security
and the economy. I guess some kind of muddling through
will will continue, and that is a very gloomy future
for the Europeans, So I would very much prefer us
(34:45):
stay united, have the capacity of renewal and reform, and
thus gain the required self confidence to also gain a
stronger role in global terms. Finally, I want to add
that we are very committee despite the current headweans we
are facing in terms of geopolitical tensions and trade wars.
(35:08):
So we as Europeans, we are committed to multilateral international
cooperation and we want to work together with our partners,
the US, Global SALFA and beyond.
Speaker 3 (35:19):
I just have one last question. It feels like here
in the US I sort of expect that for the
rest of my life that we will continue with some
sort of ongoing divorce with China, that we're never going
to go back to the early twenty tens of the
two thousands where it seemed like we could just be
like friends. Maybe I'm wrong, maybe I'm being too pessimistic,
(35:41):
et cetera. When you think about the future of relationship
with Europe and China, where do you see that going?
And especially again because our presidents has obviously thrown up
trade barriers between the United States and the euro Area,
is there a pivot to China in the works. Could
you see that relationship over time actually deepening. Like, what
(36:03):
are you thinking about in terms of the trajectory of
that relationship, because here it seems terrible.
Speaker 4 (36:09):
There is an ongoing discussion on that in Europe, both
at the European level and in the Member States. You
have two sides of the coin. On one hand, Europe
is trading a lot with China, and it's quite dependent
on China, but it's a mutual dependency in many ways,
and it's a broadly free trade, not always so fair,
but free trade. On the other hand, in China, the
(36:31):
Communist Party has taken stronger political control and China is,
let's not forget, China is supporting Russia in its military actions,
military aggression in Ukraine, and that has clearly, I'm not
sure if that Chinese have fully realized this, but that
has clearly seriously damaged the imits of China in Europe
(36:55):
because we see that they are an ally of Russia
and they are to be that alliance day trying to
destroy all our freedoms in Europe.
Speaker 2 (37:04):
All Right, Olivrian, thank you so much for coming on
all thoughts, really enjoyed it.
Speaker 4 (37:09):
Thank you very thanks for these question.
Speaker 2 (37:23):
Joe that was really interesting to get a European perspective.
I gotta say, you know, saying that the EU could
have acted quicker on the debt crisis, I think you
could almost always level that criticism at central banks and
to some respect. I mean, this is what we saw
during the financial crisis, right, So two thousand and eight,
it took a while for the FED and everyone else
(37:45):
to realize what was going on, and then they came
up with all these programs, and then when you had
subsequent crises, they could roll them out really quickly.
Speaker 3 (37:53):
You know, it's like a cliche, Oh, you try everything
else until you get to the right answer. Yeah, it
is total logical, isn't it isn't it? I guess I
guess by definition, when you get to the last thing right,
you stop. By that point, associates like they took a while,
And I have certainly never been I've never asked a
guest a question and then been told, oh, I talked
(38:13):
about this in the sauna with my wife, this very
same topic. So that was sort of a response.
Speaker 2 (38:18):
I wasn't expecting you don't talk in the sauna with
your wife.
Speaker 3 (38:24):
I just don't expect guests to have had the same
conversation with their wife.
Speaker 2 (38:28):
But I do think in general it does feel like
things are changing enormously, and I know a lot of
it is still talk at this point, but certainly speaking
with Ali, you do get the sense that there is
a conception in Europe that now is the time when
actually you kind of have a newspeg or an opportunity
(38:49):
to actually do some of the things you've said you
were going to do for a long time.
Speaker 3 (38:54):
It's funny to think about policymakers having a newspeg is
if they're like, oh, let's do a podcast on this episode.
Speaker 2 (38:59):
But they're just waiting for the headline now that.
Speaker 3 (39:02):
They're gonna do. But like, it does feel like whatever
cliche you want to use, the rubber is hitting the road.
There are serious constraints right The industrial economy is deeply stressed,
the energy situation is stressed. President Trump is putting trade stress.
They have industrial powerhouses that are like being undercut by
China or facing very stiff competition with China. There is
(39:25):
a war going on in Europe, and as you mentioned
when thinking about the future of China is the fact
that China has been an important trading partner that was
really interesting, very interesting. So you know, there are a
lot of big issues that are being forced upon Europe
right now in multiple directions, whether we're talking about the war,
whether we're talking about trade, whether we're talking about President Trump.
(39:49):
So if they're going to do something that sort of
changes the trajectory of the European project, I see why.
Speaker 4 (39:56):
It now is the time.
Speaker 2 (39:57):
It's not the rubber hitting the road, Joe, it's a
birch branch hitting back. Yeah, in this Saana, that's what's happening.
Speaker 3 (40:05):
Ali. We had the title Ali Wren on the birch
branch hitting the back, and you're a, that's our title.
Speaker 2 (40:11):
Let's leave it there before we go any further.
Speaker 3 (40:13):
Let's leave it there. Okay.
Speaker 2 (40:14):
This has been another episode of the aud Lots podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 3 (40:20):
I'm Jill Wisenthal. You can follow me at the Stalwart.
Follow our producers Carmen Rodriguez at Carmen armand dash Ol
Bennett at Dashbot and kill Brooks and Kilbrooks. More odd
Lots content go to Bloomberg dot com. Slash odd Lots
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Speaker 2 (40:40):
And if you enjoy odd Lots, if you want us
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Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:17):
Hello and welcome to another episode of the All Thoughts Podcast.
I'm Tracy Alloway.
Speaker 3 (00:22):
And I'm Joe Wisenthal.
Speaker 2 (00:23):
Joe, do you remember earlier this year there was a
moment when everyone got really excited about Europe for the
first time in probably decades.
Speaker 3 (00:33):
So, you know, I always think about is for the
two of us for a long time of our careers.
One of the many sub themes that we go it's like,
when is the Europe going to turn on the fiscal taps?
When did you start spending money in Germany? All these questions,
when are they going to be less so focus on
austerity or balanced budgets, et cetera. And then finally, and
(00:53):
maybe Trump had something to do with it, and defense
spending had something to do with it, or politics, it's
finally we're getting spending. It was like five minutes and
everyone was really excited about some of the defense docks
and the Euro's raillying and it looked, you know, a
little bit more politically stable perhaps than the US. What's happening, though,
I like, how's that going? I'm not sure I followed
it as closely as I should.
Speaker 2 (01:12):
Have I will say, I mean, the Europe is still
pretty strong against the dollar, and if you look at
the eurostocks that's still doing pretty well as well. So
there is some optimism that is still circulating the market.
But you're absolutely right, we should talk about what this means.
What does it actually mean for Europe to quote unquote
seize this moment, right, this very particular moment, and what
(01:33):
exactly does Europe want to achieve totally.
Speaker 3 (01:35):
And you know, a lot of the conversations that we
have in the US context certainly apply in the European context.
So industrial competition with China, whatever we're feeling here in
the US, certainly very heightened anxiety in Europe with the
stress on the auto industry and the chemicals industry and
so forth. Energy prices, obviously, electricity costs in the US
(01:55):
becoming a major topic, et cetera, just as big in Europe,
if not big or especially in the wake of the
Ukraine War, the shutting off of the nuclear power plants
in some countries, et cetera. So pretty much everything that
we're sort of wrestling with here, the right.
Speaker 2 (02:09):
The sort of productivity regulation.
Speaker 3 (02:12):
The splintering of the traditional parties within domestic politics. Our
parties have a bit more of a monopoly than the
European ones do, but there's similar stresses going on. So
anything that we're talking about here, it's very useful to
see how it comes across from the European line.
Speaker 2 (02:28):
Absolutely, so I'm very happy to say we do, in
fact have the perfect guest we're going to be speaking
with Aliren. He is, of course the governor of the
Bank of Finland. He is also a governing council member
over at the ECB. So Ollie, thank you so much
for coming on our thoughts.
Speaker 4 (02:42):
Thanks very much for the newittation. Great to be here.
Speaker 2 (02:45):
So from your seat in Europe, Wait, where are you
actually based in Europe? Where do you spend most of
your time?
Speaker 4 (02:51):
I have a do on life, not schizophrenic, do a life.
I have two home fields, two home terrans. One is
Hesink Finland. The Bank of Finland is the Central Bank
of Finland. But we also at the same time we
are member a member of the Eurosystem and my second
home terranist Frankfurt and the Governing Council of the ECB.
(03:11):
And the same goes for the large part of our
civil servants. Economis and lawyers at the Bank of Finland
like in the other nineteen national central banks. That's the
eurosystem perfect.
Speaker 2 (03:23):
So from your seat in Helsinki and Frankfurt, does it
feel like something's changed within Europe? Does it feel like
there is the sense that maybe the current time period
is some sort of opportunity.
Speaker 4 (03:36):
Certainly things have changed in Europe a lot for the
verses we know because of Russia's unjustified brutal war in Ukraine,
but second as a wake up to that situation, including
the impact of President Trump as well. And I would
say that if you look at the Europe for the moment,
we have one issue which is above others, and that
is common defense and spending on common defense, from air
(04:01):
defenses to drone production and other elements of military technology
and production. And that's also very much an economic issue. Actually,
it's a finest opportunity in a sense that the best
argument for safe assets in Europe is in the defense spending.
We need both national and European funding. This is, in
(04:23):
my view, a possibility to pave the way for a
deep and liquid European capital market.
Speaker 3 (04:29):
That's great, I'm glad you jump right into this question
of further integration and some of the stakes here, particularly
as it relates to defense, because this has been something
that's been on my mind a lot, and I wanted
to get in with you. When we think about industrial
capacity or think about industrial competition, scale is really important.
The size of the market is very important, and this
(04:51):
is part of the whole premise of the euro Area,
which is, let's have an integrated market. And yet, on
the other hand, domestic politics are still a thing I
have to imagine in defense specifically, there must be a
lot of anxiety at each individual country. Do we want
our national maker of X rolled up into some larger
(05:11):
conglomerate to what degree, whether we're talking about defense or
other any other industrial any other industrial sector, does there
still remain attention between the scale required for competitiveness and
the desire for some sovereignty within each country to have
their maker of X or y.
Speaker 4 (05:32):
Yes, there is that tenstone. But that's why we do,
we make policy, and that's why we try to change
things in Europe. Actually, that brings to my mind an
anecdote concerning precisely common defense. How things have changed. Okay,
the country I know best, Finland in NATO in April
twenty twenty three, and I recall my own time in
(05:55):
military service in the early nineteen eighties in the SUBBA
Brigade in eastern Finland, in the city which used to
be the headquarters of US and manner Him during the
Winter War. Today that garrison area is actually a regional
sub headquarters of NATO. So you see the change in
(06:16):
terms of defense in dissic caard in northern Europe. Talking
about economies of scale, yes, we lack a genuine single
market in many areas like services and to some extent capital,
and that's why we are very committed to move forward with,
for instance, the Savings an Investment Union, which aims at
(06:37):
transforming the formidable savings of Europeans ten trillion. That's the
estimate to productive investment by some kind of say popular capitalism. That's,
in my view, one essential element of creating a more
unified Europe and creating a more competitive Europe.
Speaker 2 (06:57):
The other thing, when it comes to building up a
fence industry that is sometimes debated is this idea of
should you spend money on investing in defense programs or
should you spend money, you know, buying the products that
these defense companies are actually producing because what's the point
of building out this massive capacity if you don't have
(07:17):
a dependable customer for the foreseeable future. How would you
structure that sort of spending to make sure that it's durable,
I guess and effective.
Speaker 4 (07:28):
That's a very critical question in the European context, and
that's why as we are conducting joint European funding exercises
in this like the one hundred and fifty billion euro
Safe Instrument by the European Commission, it's a sense that
we purchase those arms and arms technologies by common procurement
(07:52):
and by investing in joint research and innovation projects. That's
the way to get more bank for the euro and
that's now the effort which the European countries and the
Commission are engaged with. In fact, it is clear, it's
quite clear that we are going to in Europe. We
are going to purchase both say domestic European products and
(08:14):
also American products. In some areas the US is more advanced.
For instance, Finland is purchasing sixty four if thirty five
to replace our existing fleet of sixty four eighteens which
date from the early nineteen nineties.
Speaker 3 (08:30):
How costly is it I guess, to put it bluntly,
I don't know that the US is not the reliable
trading partner it might have seemed to be. I mean,
I know there's still a lot of trading you just mentioned,
you know, replaced the plain fleet, et cetera. But clearly
we all read the news, we all know what's going on.
How costly is it for Europe? And do you perceive
there to be a lot of frankly unnecessary duplications of
(08:55):
investment efforts across the Atlantic currently because of trade tensions.
Speaker 4 (09:02):
We do expect that, and that's having a negative impact
on productivity and thus on the economy, growth and well being.
As far as the impact of US tariffics is concerned,
we have tried to estimate that. It's a bit difficult,
as policy making is fairly volatile, so it depends on
the day or the week when you take the cutoff data.
(09:26):
You know that perhaps, But our estimate, which is roughly
done on the basis of the current US study PHRASEM,
is that it will hit growth in the Eurozone roughly
by half a percent its point next year. But the
good news is that the European economy is actually demonstrating resilience.
(09:46):
We are still growing this year, probably around one person
or so one point two percent, and we are projective
to grow by one point three percent in the next
two years despite the headwinds of geopolitical tensions and thirty
for wars.
Speaker 2 (10:03):
So you wrote something for Vox a few months ago
called Europe must not Waste its currency moment, and you know,
reading it, it sounds very much like there's perhaps an
ambition to maybe replace some of the influencer, some of
the global role of currently fulfilled by the US and
the dollar with the Euro. Is that how we should
(10:25):
be reading it? Is there like a conscious effort underway
currently to expand the Euro's influence in the world.
Speaker 4 (10:34):
There is a deliberate, conscious effort to enhance the Euro's
global role in the currently changing international monetary system. And
if I put the background first, I think you're seeing
the interestional monetary system or the global financial system in
transformation for the moment, and you have two main drivers
(10:58):
in broad sense. On one hand, the geopolitical confrontation and
on the other hand, we have a technological disruption thanks
to digital assets, stable coins, central bank digital currencies. How
this will play out will be quite crucial as to
the evolution of the monetary system. Concerning the geopolitical competition,
we see China's efforts to strengthen the role of remimbiod
(11:22):
or the yuan, for instance, with the rodent built initiative
and linking trade agreements to an enhanced roll of the yuan.
And there is a major but there are still capital
controls in China, and there is no legal certainty in
China in the western sense, so that creates quite significant
(11:44):
limitations for the Remember, in the technological site, we've seen
the growth of stable coins. More recently, we've seen certain
volatility of cryptos last week, classified days just a little yes,
And for instance stable coins, they are clearly intended to
increase demand for US treasuries to feel the federal deficit
(12:06):
of the United States of America and thus to enhance
the roll of US dollar and US dollar dominance. I
believe that on the basis of historical experience, let's say,
for instance, by the writings of Professor Barry ahen Green
of the Berkeley that historical shifts in the international monitary
system take place slowly and on the basis of the
(12:28):
structural chances in the economy and security structures. That's why
I believe that US dollar dominance will prevail for quite long,
perhaps less as a single unipolar hegemon in the monetary
system than before, and we may move towards a more
multipolar monetary system and their Europe can have a significant
(12:52):
reserve on the condition that we can strengthen the foundations
of the European economy in security, in terms of economic dynamic.
In terms of.
Speaker 3 (13:05):
When it comes to economic dynamism, people are pretty pessimistic
about Europe these days. They look at an industrial sector
that is maybe being hobbled by a competition with China.
They see the country, the various countries is not being
at the forefront of the AI investments with tech in general,
(13:27):
there's a perception that the economies are still overregulated, it's
not a great place to have a startup and so forth.
What is the sort of the Bowld case or maybe
the sales pitch for sort of the euro inc the
European economy, where does growth come from in the dynamic
durable manner.
Speaker 4 (13:47):
There is a Wybrant stop community for instance in Finland.
Speaker 3 (13:51):
Finland is actually Finland's probably the exception you do hear
about finished startups speed credit.
Speaker 4 (13:56):
In France, many other We actually we have a vibrant
startup community in Europe. By the way, welcome to Slush,
even though I'm not the organizer, but Slush is the
well known major conference in inheriting Ky.
Speaker 3 (14:12):
We love to come to November. Introduce us next the
major we love to come.
Speaker 4 (14:17):
That's the major startup that found great global startup even
since early twenty tens. Okay, it's good to know the
name Slush comes from November because you have so much
slash in November. So that's why it's for slush. But
it's a very bright event in the darkest.
Speaker 3 (14:34):
Why it goes into the saunas the rest of the
time to get out of the slush.
Speaker 4 (14:38):
Yeah, well I do it twelve months per year, a
few times per week.
Speaker 3 (14:41):
Sounds great, not bad, not bad.
Speaker 4 (14:45):
But even more seriously so, we have startups, We have
some unicorns. But the general challenge in Europe is that
in the scale up phase, many companies choose the US
a Silicon Valley or or New York Stock Exchange or
combination of both, because it's easier to get winsor capital.
You have a large market which is culturally fairly similar,
(15:06):
even though there are certain differences between California and think
California and yeah, say South Carolina, right, yes, Okay, So
in any case, it's the scale of phase and internationalization
phase where we have to do better. And that's why,
for instance, our government's efforts to enhance growth in Finland
(15:27):
are films focused on funding of scale ups and growth companies.
Speaker 2 (15:47):
So when I think about a business being competitive, especially
in the areas that people seem to be very excited
about nowadays, things like AI data centers, I guess defense nowadays,
I think about one aspect of competitiveness is price right,
and if your input costs are higher than a lot
of other people, then you're going to struggle to provide
(16:09):
these things at a low cost. And in Europe the
big input cost that people seem to struggle with is energy. Right,
How in the world does Europe start to compete in
terms of global competitiveness with energy prices so high? And
what can you do about it?
Speaker 4 (16:27):
We have to go back. I have to go back
to Finland metaphysically, mentally now again because we have an
x number of data center investments coming in Finland, mostly
with foreign direct investment thanks to the combination of relatively
inexpensive electricity and relatively cool climate, which is conducive for
(16:49):
data centers. So in that sense, there are differences within
Europe as well. The key is very much to continue
the green transition with consistency. For the moment, still, countries
like Germany are suffering from higher electricity and energy costs.
That is true largely because Germany was so dependent on
(17:13):
Russian fossil fuel, especially because its energy intensive chemical and
other industries who have been so dependent. But the green
transition is moving forward. We lean much more on renewable
energy than before. Of course, energy efficiency and smart electricity
systems play also a key role here, and I would
(17:36):
expect that this green transition will be I mean not concluded,
but will be very far by the end of this decade,
so that we have a much more competitive condition in Europe.
In this card, I had one thing. Often, when you
compare fossil energy and you compare you compare fossil energy
(17:56):
to say, renewable energy. The capital costs in renewables are
often higher, like say investing in wind parks or solo energy,
but the running costs are quite low. Meanwhile, in fossil
fuels it's often let's say the reverse, or that the
capital costs sign not that's huge, but you have very
(18:18):
significant running costs. So once you are far enough in
the green transistion preferably supplemented by nuclear enocy in my view,
than our cost competitiveness in terms of energy will also
be what's better.
Speaker 3 (18:32):
It sounds like the solution to some of what l's
Europe is that everyone needs to be more like Finland.
Sounds like you guys haven't figured out and everyone else
in Europe needs to be more like that.
Speaker 4 (18:43):
No.
Speaker 3 (18:43):
For really, when it comes to broad like like industrial pressure,
can you like attribute and maybe this is more of
a German specific question, but I think it probably applies
more broadly. Is it possible to decompose the degree to
which competition with China, especially things like chemicals. China's very
competitive chemicals, though it doesn't get much attention obviously, cars
(19:07):
globally is just a huge story when you look at
like sort of the sputtering out of industrial production in
Germany or just you'ree More broadly, it's possible to decompose
how much of it is undercutting on price from China
versus the higher costs that have surged particularly since early
twenty twenty two.
Speaker 4 (19:24):
Wells, it is possible, but I don't have the figures
of the cuff. But I recall that in twenty twenty two,
which was the high point of energy costs in Europe,
So we calculated with a friend of mine, and then
we verified that by our economists that year Europe paid
eight hundred billion euros for fossil fuels instead of the
(19:47):
long term average of three hundred So we paid five
hundred six hundred billion euros more that year, which then
was roughly three percent of CDP. So in twenty two
we had you can say that it was kind of
an extra tax over every European of three percent of
(20:10):
the income on average, which of course created quite a
lot of popular opposition and criticism. Fortunately we have been
it's not actually about fortunate, it's about political will and action.
We have been able to broadly adds to the end
of Russian gas in Europe, but we still have some
(20:34):
work to do in many countries. You mentioned Germany. Germany
still has a work to do in order to reduce
its en itsy costs in its industrial production.
Speaker 2 (20:44):
If you could waive a magic wand and do one
thing to boost European either productiveness, productivity or competitiveness. Basically
make all of Europe more like Finland. What would it
be other than installing saunas and everyone's house that's a
good idea actually even though fairly electricity.
Speaker 3 (21:04):
Let's not hope it would be energy.
Speaker 4 (21:06):
Depending depending if you use electricity or would in heating.
I have both in the summer credits. Its would by
the way, most seriously, most seriously, if I could do
one thing, I would complete the single market without the
delay and also create a genuine savings and Investment Union
(21:29):
with a deep and liquid capital market, because this would
help address the challenge of venture capital and financing of
European startups and growth companies.
Speaker 2 (21:39):
What would it do? What would that sort of cohesive
market do that you can't do right now at a
national level? Would it just lower capital costs for everyone?
Speaker 4 (21:50):
Or for instance, concerning the Savings and Investment Union, you
have actually a long list of concrete decisions that it
will require. But the key things are in many ways,
to have a safe asset, a European safe asset, which
would facilitate the creation of genuine European capital market. And
(22:11):
then in addition to that, there are quite reasonable proposals
of creating either tax incentives or other decisions that encourage
people to invest, people meaning individual citizens and households. Sweden
actually is a very good example of this, so that
in Sweden, for instance, you have a certain portion of
(22:33):
your retirement payments that you have to invest to the
stock market or funds oh I see yeh, which has
helped to create a culture of investment in Sweden. And
we are actually even though Finland was mentioned as a
role model, but we are benchmarking in Sweden in basic
card because they have the most vibrant to answer capital market.
(22:55):
Also thanks to this quite well functioning capital market.
Speaker 3 (22:59):
It makes total sense that you know, I think of
the Euro Area of the whatever version of it we
want to talk about, is it's an ongoing project. It's
always a work in progress. It will probably never be
completely finished. There's always more to do. But this to
my mind gets to the sort of like the challenge
(23:19):
of domestic politics, right and like we also see what's
happening here. We're October sixteenth, our government is shut down.
But it feels like various versions of this stress are
replicating themselves across the sort of rich developed Western countries. France,
their government always seems to be like two weeks away
from collapsing. Who knows if they'll have a government. I
(23:40):
don't know if Belgium has a government these days. I
think the Dutch have an election coming up. Who knows
what's happening there. If you look at polls in Germany,
we all know that parties like the AfD, which are
in a very different trajectory, are doing very well in
the polls there, etc. Like how much of the Yeah,
it's great to say, like people here in d C
(24:01):
these conferences and here Bloomberg, I love the idea of
like integrated market, but how much is the roadblock that
you foresee to get to where you want? Essentially the
reality of domestic electoral politics in each of the member countries.
Speaker 4 (24:16):
It's a continuous silence. And you're right. So when you
said that Europe or the European Union or Eurozone is
a community or community of states that is in constant movement,
I would wish that it would be in a more
rapid movement, but it is indeed an unfinished business and
will continue to be. So that's why it is actually
so so fascinating and meaningful to work for Europe on
(24:39):
these two brief points. First, the political battles or the
political competition of the souls of the people are done
in Europe in the member states. Yeah, national politics are
key here and that's why I have a high regard
for national politicians who face this silence in the town
(25:00):
hall meetings and in the social media or elsewhere, and
of course in terms of policy making. So we have
to be able to do such concrete policies that help
alleviate the concerns of the citizens and both sustainable growth
and sub creation in Europe. That's the essence. Second comment
is that it's quite interesting that even though we have
(25:20):
had and continue to have populist movements challecing say, the
most interested parties in almost all countries of Europe, still
the European Union is holding together and it is structurally
kind of it's.
Speaker 3 (25:34):
Still fairly popular, isn't it. Like actually the Pole still
showed a fair amount of popularity of these like multinational
it is.
Speaker 4 (25:41):
It is for instance, in France, the right wing party
Aaron has torn down its criticism concerning the Europe in
recent years, and Europe, or in this case, the European
Union works as a glue that helps to keep together
the policy making structure of Europe. So in that sense
(26:02):
it has a certain impact, kind of second level reverse
impact on domestic politics as well. Quite illustrative is that
in Finland on Monday, after many years of his cousin,
we were able to agree or the eight parliamentary parties
were able to agree on a long term commitment to
balance the budget and depth anchor, which is historic and
(26:26):
it is also respecting the EU of his car rules.
Even the parties that have been quite critical on Europe
are part of this agreement, which in my views actually
quite encouraged.
Speaker 2 (26:53):
Earlier this year everyone got very excited about Germany finally
wanting to spend right. We weren't going to be terrized
by the Black Zero, the Schwartz and Nule forever. Do
you get the sense that things are changing in other countries,
because again here in the US, the headlines we see
for a place like France is worries over the deficit,
(27:14):
political I don't want to say incoherence, but certainly a
little bit of political chaos. Does it feel like all
of the Eurozone is becoming more comfortable with the idea
of spending for strategic purposes at this moment in time,
or is it primarily still Germany.
Speaker 4 (27:31):
It is primarily maturity of other member states. But you
are right, there is a certain variety of concerning the emphasis,
and Germany plays a key role here. The decisions of
the German government and in fact German government and opposition
earlier this year are now taking effect. They abuceatory laws,
(27:51):
so they will be implemented. That's critical. But so other countries,
like all the Nodics. The Nordics together are twenty seven
million people and relatively worth the area in the globe,
and all the noted countries are expanding their defense expendits significantly,
so all the Eastern European countries and several over the
(28:15):
Western European countries. So overall, the pictories I would say encouraging.
I don't sought for victory yet, but we are on
the right road here.
Speaker 3 (28:26):
You know, it's really great to have you on the
podcast because both Tracy and I covered the Eurozone crisis
of the early the first half of the twenty tens
quite intensely. There are numerous headlines that you would make news,
and I saw your name and numerous headlines over time
and maybe next time you come on, I'd love to
just like do an hour and just talk about that time,
(28:46):
provided we don't want to give you like euro crisis, PTSD, etc.
But I do have one, you know, I have really
good questions about what that time was really like. But
I was talking about this as someone last night, you know,
as the crisis metastasized over time and always were going
to introduce a new bailout fund and I forget acronym
after acronymiah, that's like, yeah, all the acronym soup.
Speaker 4 (29:09):
Yeah.
Speaker 3 (29:09):
But then the crisis ended essentially on the day that
Mario Dragi said that sovereign spreads were an impediment to
monetary transmission, and once he said that closing spreads were
sort of mandate consistent with the ECB, from then on everything.
Speaker 4 (29:23):
So that was it.
Speaker 3 (29:24):
That was the moment that the crisis really turned. Couldn't
that have happened a lot earlier? Was there a lot
of unnecessary pain that was incurred in Europe because it
took so long to sort of get to the point
that the ECB could find a way that it was
within its remit to close spreads.
Speaker 4 (29:43):
I think it's a legitimate question and I've been thinking
about that quite a lot. I have actually answered to
this question in my book quote Walking into the High
Wire uter Zone Crisis. In fact, that it is through that.
Once Mario said now let's send our reverts takes within
our mandate UH to save the Euro, then the animal
spirits that was it turned around and the market started
(30:06):
to believe that the easy b is functioning as the
central bank must function as the lender of last resort.
Speaker 3 (30:13):
That was the moment centralment central.
Speaker 4 (30:18):
Yeah, that's right, that's right, and that's why before that
it was kind of incrementalist firefighting. This was not without
value because we were able to keep the Euro a
float and support many countries Greece, Portugal, Island, Spain with
the funding of the European Stability Mechanism or its precursor.
(30:39):
In fact, now the countries that then the then we're
in the EU I m F programs have been in
the past years. They have been one of.
Speaker 3 (30:47):
The best performance in everything, totally flipped since the twenty tens.
Speaker 4 (30:54):
So they have reformed their economic structures to a lots
extent and they are much more competitive for the moment,
and their public finances are on his own basis, But.
Speaker 3 (31:03):
There were years of pain in Greece and particularly Italy
as well, like truly, like like incredible economic damage and
by some measures they would say, like on par with
the Great Depression in the United States? Could Europe have
gotten to that point? Could Mario Draggy have given the
whatever it takes speech in two thousand and nine? Did
it have to wait as long as it did? And
all these other mechanisms have to try first?
Speaker 4 (31:25):
Mario drague Is started as ECB president in November two.
Speaker 3 (31:29):
Well, you're right, so there's no way he could have
given the speech in two thousand and nine. Could Jean
claud Trichet have given the speech in two thousand and nine?
Speaker 4 (31:36):
You have to ask him. But I think that's my.
Speaker 3 (31:39):
Point is did it did all?
Speaker 2 (31:41):
Could they have moved faster?
Speaker 4 (31:42):
Did?
Speaker 3 (31:42):
Were all of these steps necessary in which the before
the ECB as an institution got comfortable with its role,
that it would be much like the FED and other
central banks, some sort of backstop or lender of last resort?
Did there all? Did everything else need to be tried first?
Speaker 4 (32:00):
Like I was talking to my wife in the sauna
during the Eurozone crisis from two thousand and nine onwards,
so pretty much I share your you and if you
take more. It's a historical view of that. So when
the Euro was created, then the kind of majure event
like the Eurozone depth crisis was not perceived apparently in
(32:22):
the mindset the creators of the Euro, because there was
no stability mechanism like the IMF. The European stability mechanism
is the IMF in the European context. Actually, the sm
has more capital than the IMF total capital, so that
was not in existence when the crisis hit. We had
to create in the run on the flight. And the
(32:44):
second problem was that among the economists there was much
discussion about whether the Eurozone or the Economic Monetary Union
is an optimal currency area, but macroeconomic imbalances and finances
stability is used. We're kind of forgotten at the time
from focus also in the economists community. I think that's
(33:04):
something that deserves some self criticism among the economists as well.
Speaker 2 (33:09):
We have to do an episode just about the Eurozone
crisis at some point, but we can't do it right now.
So just our five minutes left, in our five minutes left,
so just going back to the start of this conversation
which was about you know whether or not this is
a moment potentially for Europe. If Europe doesn't, the Eurozone
(33:30):
doesn't successfully mount some of the changes that you've discussed,
if it wastes this current opportunity, what's the most likely
path for the block as a whole. And then secondly,
how would you know that Europe has kind of achieved
this global success? Are there things that you look out for?
(33:50):
Is it share of currency used in global trade or
something like that.
Speaker 4 (33:55):
Well, first, what's the miser or what's the yardstick of
measuring success of say European economic policy. I think fundamentally
that is the well being of European citizens and say freedom, entrepreneurship,
well being, also social protection of europe as access to sunances,
(34:16):
that's a basic human rights are essential civil liberty.
Speaker 2 (34:20):
My mom had a sauna when she was in Estonia
and it was amazing.
Speaker 4 (34:24):
That's to the second part. But then the first part,
what if Europe won't be able to do the necessary
things in order to become stronger in terms of security
and the economy. I guess some kind of muddling through
will will continue, and that is a very gloomy future
for the Europeans, So I would very much prefer us
(34:45):
stay united, have the capacity of renewal and reform, and
thus gain the required self confidence to also gain a
stronger role in global terms. Finally, I want to add
that we are very committee despite the current headweans we
are facing in terms of geopolitical tensions and trade wars.
(35:08):
So we as Europeans, we are committed to multilateral international
cooperation and we want to work together with our partners,
the US, Global SALFA and beyond.
Speaker 3 (35:19):
I just have one last question. It feels like here
in the US I sort of expect that for the
rest of my life that we will continue with some
sort of ongoing divorce with China, that we're never going
to go back to the early twenty tens of the
two thousands where it seemed like we could just be
like friends. Maybe I'm wrong, maybe I'm being too pessimistic,
(35:41):
et cetera. When you think about the future of relationship
with Europe and China, where do you see that going?
And especially again because our presidents has obviously thrown up
trade barriers between the United States and the euro Area,
is there a pivot to China in the works. Could
you see that relationship over time actually deepening. Like, what
(36:03):
are you thinking about in terms of the trajectory of
that relationship, because here it seems terrible.
Speaker 4 (36:09):
There is an ongoing discussion on that in Europe, both
at the European level and in the Member States. You
have two sides of the coin. On one hand, Europe
is trading a lot with China, and it's quite dependent
on China, but it's a mutual dependency in many ways,
and it's a broadly free trade, not always so fair,
but free trade. On the other hand, in China, the
(36:31):
Communist Party has taken stronger political control and China is,
let's not forget, China is supporting Russia in its military actions,
military aggression in Ukraine, and that has clearly, I'm not
sure if that Chinese have fully realized this, but that
has clearly seriously damaged the imits of China in Europe
(36:55):
because we see that they are an ally of Russia
and they are to be that alliance day trying to
destroy all our freedoms in Europe.
Speaker 2 (37:04):
All Right, Olivrian, thank you so much for coming on
all thoughts, really enjoyed it.
Speaker 4 (37:09):
Thank you very thanks for these question.
Speaker 2 (37:23):
Joe that was really interesting to get a European perspective.
I gotta say, you know, saying that the EU could
have acted quicker on the debt crisis, I think you
could almost always level that criticism at central banks and
to some respect. I mean, this is what we saw
during the financial crisis, right, So two thousand and eight,
it took a while for the FED and everyone else
(37:45):
to realize what was going on, and then they came
up with all these programs, and then when you had
subsequent crises, they could roll them out really quickly.
Speaker 3 (37:53):
You know, it's like a cliche, Oh, you try everything
else until you get to the right answer. Yeah, it
is total logical, isn't it isn't it? I guess I
guess by definition, when you get to the last thing right,
you stop. By that point, associates like they took a while,
And I have certainly never been I've never asked a
guest a question and then been told, oh, I talked
(38:13):
about this in the sauna with my wife, this very
same topic. So that was sort of a response.
Speaker 2 (38:18):
I wasn't expecting you don't talk in the sauna with
your wife.
Speaker 3 (38:24):
I just don't expect guests to have had the same
conversation with their wife.
Speaker 2 (38:28):
But I do think in general it does feel like
things are changing enormously, and I know a lot of
it is still talk at this point, but certainly speaking
with Ali, you do get the sense that there is
a conception in Europe that now is the time when
actually you kind of have a newspeg or an opportunity
(38:49):
to actually do some of the things you've said you
were going to do for a long time.
Speaker 3 (38:54):
It's funny to think about policymakers having a newspeg is
if they're like, oh, let's do a podcast on this episode.
Speaker 2 (38:59):
But they're just waiting for the headline now that.
Speaker 3 (39:02):
They're gonna do. But like, it does feel like whatever
cliche you want to use, the rubber is hitting the road.
There are serious constraints right The industrial economy is deeply stressed,
the energy situation is stressed. President Trump is putting trade stress.
They have industrial powerhouses that are like being undercut by
China or facing very stiff competition with China. There is
(39:25):
a war going on in Europe, and as you mentioned
when thinking about the future of China is the fact
that China has been an important trading partner that was
really interesting, very interesting. So you know, there are a
lot of big issues that are being forced upon Europe
right now in multiple directions, whether we're talking about the war,
whether we're talking about trade, whether we're talking about President Trump.
(39:49):
So if they're going to do something that sort of
changes the trajectory of the European project, I see why.
Speaker 4 (39:56):
It now is the time.
Speaker 2 (39:57):
It's not the rubber hitting the road, Joe, it's a
birch branch hitting back. Yeah, in this Saana, that's what's happening.
Speaker 3 (40:05):
Ali. We had the title Ali Wren on the birch
branch hitting the back, and you're a, that's our title.
Speaker 2 (40:11):
Let's leave it there before we go any further.
Speaker 3 (40:13):
Let's leave it there. Okay.
Speaker 2 (40:14):
This has been another episode of the aud Lots podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 3 (40:20):
I'm Jill Wisenthal. You can follow me at the Stalwart.
Follow our producers Carmen Rodriguez at Carmen armand dash Ol
Bennett at Dashbot and kill Brooks and Kilbrooks. More odd
Lots content go to Bloomberg dot com. Slash odd Lots
were the daily newsletter and all of our episodes and
you can chat about all of these topics twenty four
to seven in our discord discord dot gg slash outlines.
Speaker 2 (40:40):
And if you enjoy odd Lots, if you want us
to go to Finland and talk about your zone crisis
days with Aliren, then please leave us a positive review
on your favorite podcast platform. And remember, if you are
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Hosts And Creators
Joe Weisenthal
Tracy Alloway
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