Olli Rehn on the Big Competitiveness Challenge Facing Europe
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this episode of Odd Lots, hosts Tracy Alloway and Joe Weisenthal speak with Olli Rehn, Governor of the Bank of Finland and ECB Governing Council member, about Europe's current moment of opportunity and challenge. (05:20) The conversation explores how Europe is grappling with multiple pressures - from defense spending needs due to the Ukraine war, to industrial competition with China, rising energy costs, and trade tensions with the US. Rehn discusses Europe's path toward greater integration, particularly through defense spending and capital market development, while addressing the ongoing structural challenges that have plagued European competitiveness for years.
- Main themes: European integration through defense spending, industrial competitiveness challenges, energy transition, and the future role of the euro in a multipolar monetary system
Speakers
Olli Rehn
Governor of the Bank of Finland and member of the European Central Bank's Governing Council. Rehn has extensive experience in European economic policy, having served during the eurozone crisis of the 2010s and authored "Walking the High Wire" about that period. He splits his time between Helsinki and Frankfurt, overseeing both national central banking operations and eurozone monetary policy.
Tracy Alloway
Co-host of Bloomberg's Odd Lots podcast and experienced financial journalist covering global markets, economic policy, and financial crises.
Joe Weisenthal
Co-host of Bloomberg's Odd Lots podcast and veteran financial journalist known for in-depth analysis of economic trends and policy developments.
Key Takeaways
Defense Spending as Economic Catalyst
Europe's increased defense spending represents both a security necessity and an economic opportunity. (05:58) Rehn emphasizes that defense spending provides "the best argument for safe assets in Europe" and could pave the way for deeper European capital market integration. This isn't just about military hardware - it's about creating economies of scale through joint procurement and research projects. The strategy involves purchasing both domestic European products and American technology where the US is more advanced, while building up European defense industry capacity for the long term.
Complete the Single Market and Create Investment Union
When asked what single action would most boost European competitiveness, Rehn identified completing the single market and creating a genuine savings and investment union. (25:08) This involves mobilizing Europe's €10 trillion in household savings into productive investment through "popular capitalism." The challenge isn't lack of capital - it's that European startups often move to the US for scale-up funding because of fragmented European capital markets. A unified capital market would help European companies stay and grow in Europe rather than migrating to Silicon Valley or New York.
Energy Transition as Competitive Advantage
Despite current high energy costs plaguing countries like Germany, Rehn sees the green transition as ultimately creating competitive advantage. (22:24) He explains that renewable energy has higher upfront capital costs but much lower running costs compared to fossil fuels. Countries like Finland are already attracting data center investments due to relatively cheap electricity and cool climate. The key is maintaining consistency in the green transition, supplemented by nuclear energy, to achieve cost competitiveness by the decade's end.
Learn from Crisis Management Success
The eurozone crisis taught valuable lessons about institutional adaptation under pressure. (35:26) Rehn acknowledges that Mario Draghi's "whatever it takes" speech could potentially have been delivered earlier, but notes that crisis response often requires trying multiple approaches before finding the right solution. The countries that went through EU-IMF programs (Greece, Portugal, Ireland, Spain) have now become some of Europe's best economic performers after reforming their structures. This demonstrates that painful adjustments can lead to stronger competitive positions.
Maintain Multilateral Commitment Despite Challenges
Even facing geopolitical tensions and trade wars, Europe remains committed to multilateral international cooperation. (40:51) Rehn emphasizes wanting to work with partners including the US and Global South, while navigating the complex relationship with China. This balanced approach - recognizing China as both a major trading partner and a supporter of Russia's aggression - reflects Europe's attempt to maintain economic pragmatism while upholding security principles.
Statistics & Facts
- In 2022, Europe paid €800 billion for fossil fuels instead of the long-term average of €300 billion - an extra €500 billion representing roughly 3% of GDP that year. (23:07) This massive increase in energy costs created what Rehn described as an "extra tax" on every European equivalent to 3% of their income on average.
- The European Stability Mechanism (ESM) has more total capital than the International Monetary Fund, making it effectively "the IMF in the European context." (38:21) This institutional development occurred during the crisis response and now provides a stronger financial backstop for eurozone countries.
- Europe has an estimated €10 trillion in household savings that the Savings and Investment Union aims to transform into productive investment. (08:25) This massive pool of capital represents the potential for "popular capitalism" that could fund European startups and growth companies.
