Olli Rehn on the Big Competitiveness Challenge Facing Europe

Summary

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Odd Lots: Olli Rehn on the Big Competitiveness Challenge Facing Europe

Date: October 22, 2025
Hosts: Joe Weisenthal & Tracy Alloway
Guest: Olli Rehn (Governor of the Bank of Finland, ECB Governing Council Member)

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Episode Overview

This episode explores Europe’s current “moment of opportunity” amidst mounting geopolitical, economic, and industrial pressures. Joe Weisenthal and Tracy Alloway speak with Olli Rehn about the region’s quest for greater competitiveness, the challenges of industrial policy and integration, the energy crisis, and Europe’s evolving role in the global monetary system. Olli Rehn offers insight into the tensions between European integration and national politics, the push for defense spending, and how Europe can foster innovation and growth in a challenging environment.

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Key Discussion Points & Insights

1. Europe’s “Opportunity Moment” and Shifting Priorities

• Backdrop: Recent optimism about Europe’s markets, euro strength, and relative stability compared to the U.S. ([02:43])
• Growing attention on whether Europe can “seize this moment” for lasting reform and progress, especially in industrial competition, defense, and energy.

Notable Quote:

“We have one issue which is above others, and that is common defence and spending on common defense. ... It is a financial opportunity in a sense that the best argument for safe assets in Europe is indeed defence spending.”
— Olli Rehn [05:06]

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2. Defense Spending and European Integration

• Finland & NATO: Dramatic shifts since Finland joined NATO in April 2023 ([07:01])
• Challenge of Scale: Europe still lacks a true “single market” in services and capital, limiting its industrial competitiveness.
• Savings and Investment Union: Aims to mobilize Europe’s massive savings (~€10 trillion) into productive investment and “popular capitalism.”

Notable Quote:

“It’s the scale up phase and internationalization phase where we have to do better.”
— Olli Rehn [16:45]

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3. Defense Procurement and Durability

• Focus on Joint Procurement: The need for coordinated, long-term investment and procurement to ensure the European defense sector’s stability and cost-effectiveness ([08:58])
• Balancing U.S. & European Products: Europe will keep buying from the U.S. (e.g., Finland’s purchase of F-35s) but is also building up domestic capacity.

Notable Quote:

“It’s essential that we purchase those arms and arms technologies by common procurement and by investing in joint research and innovation projects. That’s the way to get more bang for the euro.”
— Olli Rehn [08:58]

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4. Impact of U.S. Trade Policy and Global Tensions

• U.S. tariffs and “trade anxieties” have real economic costs—estimated to reduce Eurozone growth by about half a percentage point next year ([10:33]).
• Yet, European economies show resilience, with modest but positive growth outlooks despite headwinds.

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5. Expanding the Euro’s Global Role

• Intentional Push: Europe is consciously working to increase the euro’s influence as the global monetary system undergoes transformation ([12:04]).
• Constraints on China’s Yuan: Capital controls and lack of legal certainty limit China’s ability to challenge dollar dominance.
• Outlook: The monetary system is likely to become more multipolar, with the euro strengthening its “reserve role” if Europe improves its economic and digital sovereignty.

Notable Quote:

“US dollar dominance will prevail for quite long ... but we may move towards a more multipolar monetary system and the Euro can have a significant reserve role there.”
— Olli Rehn [13:47]

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6. Addressing Europe’s Innovation & Startup Challenges

• Vibrant Startups, But Scale Up Issues: Finland and other European countries have strong startups, but many relocate to the U.S. to access capital and larger markets ([15:54]).
• Policy Focus: Efforts in Finland center on funding for scale-ups and growth.

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7. The Energy Conundrum & Green Transition

• Energy Cost Disparities: High energy prices remain a critical challenge for competitiveness, especially for industries and countries like Germany ([19:47]).
• Finland as a Model: Cool climate and cheaper electricity help attract energy-hungry data centers ([20:27]).
• Path Forward: Accelerate the green transition (renewables & potentially nuclear), making Europe more cost-competitive in the long run.

Notable Quote:

“Once you are far enough in the green transition, preferably supplemented by nuclear energy ... then our cost competitiveness in terms of energy will also be much better.”
— Olli Rehn [21:56]

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8. Decomposing Industrial Pressures: China vs. Energy Costs

• In 2022, Europe paid €800B for fossil fuels—€500B more than average, or roughly 3% of GDP ([23:24]).
• The end of Russian gas necessitated major adjustments still ongoing in countries like Germany.

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9. Reforms for Competitiveness: Completing the Single Market

• If Olli Rehn Had a Magic Wand: “I would complete the single market without delay and also create a genuine savings and investment union with a deep and liquid capital market” ([25:17]).
• Concrete Proposals: Introducing a European safe asset and incentives (à la Sweden’s model) to encourage household investment in capital markets.

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10. Politics: The Persistent Roadblock

• National politics remain the biggest hurdle to deeper integration and reform. Populist movements persist, but the EU remains structurally cohesive ([28:17]).
• Despite political turbulence, public support for European institutions is relatively strong.

Notable Quote:

“The European Union works as a glue that helps to keep together the policy making structure of Europe.”
— Olli Rehn [29:41]

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11. Fiscal Policy: Breaking the “Black Zero”

• Germany’s move away from strict fiscal rules (“Black Zero”) signals wider, more strategic investment across the Eurozone, especially in defense ([33:22]).
• Other countries, including the Nordics and Eastern Europe, are also increasing defense spending.

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12. Looking Back: The Eurozone Crisis and “Whatever It Takes”

• Joe revisits the euro crisis of the 2010s—did it take too long to reach Draghi’s famous “whatever it takes” intervention?
• Olli agrees the ECB could have acted faster, but foundational tools (like the European Stability Mechanism) had to be created on the fly ([36:12-39:38]).

Memorable Exchange:

Joe: “You are talking like I was talking to my wife in the sauna during the eurozone crisis…”
Olli: “So pretty much I share your view.”
([38:29])

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13. Measuring Success & What’s at Stake

• Success Metrics: Well-being, freedom, entrepreneurship, social protection.
• Consequences of Inaction: If Europe doesn't act, it risks “muddling through” and a “gloomy future.”
• Vision: Stay united, reform, and boost global influence—committed to multilateral cooperation ([40:24]).

Notable Quote:

“If Europe won’t be able to do the necessary things ... some kind of muddling through will continue. And that is a very gloomy future for the Europeans.”
— Olli Rehn [40:53]

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14. Europe-China Relations: Future Trajectory

• Despite trade ties, China’s support for Russia in Ukraine has severely damaged its image in Europe ([42:38]).
• Ongoing debate on the balance between economic ties and geopolitical realities.

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Memorable Moments & Quotes

• Sauna as a metaphor and workplace:

  “You are talking like I was talking to my wife in the sauna during the eurozone crisis…”
  — Olli Rehn [38:29]

• On Slush (Helsinki’s startup conference):

  “The name slush comes from November because you have so much slush in November. But it's a very bright event in the darkest time.”
  — Olli Rehn [15:54]

• On what makes success in Europe:

  “Access to saunas. That's a basic human right.”
  — Olli Rehn [40:44]

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Notable Timestamps

• [05:06] Common defense as the leading European issue
• [07:01] Finland’s integration into NATO and changes in defense policy
• [10:33] Impact of U.S. tariffs and global trade tensions
• [13:47] Euro's potential as a global reserve currency
• [19:47] Energy costs and competitiveness challenges in Europe
• [23:24] The real cost of energy shock in 2022
• [25:17] Olli Rehn’s “magic wand” reforms for Europe
• [28:17] The persistent challenge of domestic politics
• [36:12] ECB’s response to the eurozone crisis—“whatever it takes”
• [40:24] How to measure European success and stakes for the future
• [42:38] The shifting perception of China in Europe

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Tone & Language

Throughout, the conversation is candid, nuanced, and at times playful. Tracey and Joe blend serious macroeconomic questions with moments of levity (e.g., “Access to saunas” as a human right, and joking about the perils of European slush). Olli Rehn’s tone is pragmatic yet optimistic, balancing acknowledgment of Europe’s challenges with a call for persistent reform and integration.

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Summary for New Listeners

This episode provides a comprehensive, candid look at the economic and political crossroads facing Europe. Olli Rehn, drawing on his dual vantage as Governor of the Bank of Finland and ECB policymaker, details the challenges and opportunities amid shifting global dynamics, trade disputes, and defense imperatives. The discussion covers everything from the need for deeper financial integration to the hard realities of the energy transition, and features revealing reflections on the eurozone crisis and Europe’s trajectory in an increasingly multipolar world.

If you’re interested in the future of European competitiveness, integration, and the continent’s place in the changing global order, this episode is an essential listen.

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Transcript

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[Tracee Alloway]

Hello and welcome to another episode of the All Thoughts podcast. I'm Tracee Alloway.

[Joe Weisenthal]

And I'm Joe Weisenthal.

[Tracee Alloway]

And I'm 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.

[Joe Weisenthal]

So you know what 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 is like when is Europe going to turn on the fiscal taps? When are they going to start spending money in Germany? All these questions, when are they going to be less so focused on austerity or balanced budgets, et cetera. And then finally, and maybe Trump had something to do with it and defense spending had something to do with it or politics is finally we're getting spending. There was like five minutes and everyone was really excited about some of the defense stocks and the euro's railing and it looked, you know, a little bit more politically stable perhaps than the U.S. what's happening though? I like. How's that going? I'm not sure. I haven't followed it as closely as I should have.

[Tracee Alloway]

I will say, I mean the euro is still pretty strong against the dollar and if you look at the euro stocks, 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 exactly does Europe want to achieve?

[Joe Weisenthal]

Totally. 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 becoming a major topic, etc. Just as big in Europe, if not bigger, especially in the wake of the Ukraine war, the shutting off of the nuclear power plants in some countries, etc. So pretty much everything that we're sort of wrestling with here, the rise, the.

[Tracee Alloway]

Sort of productivity regulation, the splintering of.

[Joe Weisenthal]

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 lines.

[Tracee Alloway]

Absolutely. So I'm very happy to say we do in fact have the perfect guest. We're going to be speaking with Oli Ren. He is of course the Governor of the bank of Finland. He is also a governing Council member over at the ecb. So, Oli, thank you so much for coming on Oddlauds.

[Olli Rehn]

Thanks very much for the invitation. Great to be here.

[Tracee Alloway]

So, from your seat in Europe. Wait, where are you actually based in Europe? Where do you spend most of your time?

[Olli Rehn]

I have a dual life. Not schizophrenic, but dual life. I have two home fields, two home terrains. One is Helsinki and Finland. The bank of Finland is the national central bank of Finland. But we also, at the same time, we are a member of the euro system. And my second home terrain is thus Frankfurt and the Governing Council of the ecb. And the same goes for the large part of our civil servants, economists and lawyers at the bank of Finland, like In the other 19 national central banks, that's the euro system.

[Tracee Alloway]

Perfect. So from your seat in Helsinki and Frankfurt, does it feel like something's changed within Europe? Does it feel like there is this sense that maybe the current time period is some sort of opportunity?

[Olli Rehn]

Certainly things have changed in Europe a lot for the worse, as 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 Europe for the moment, we have one issue which is above others, and that is common defence and spending on common defense, from air 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 financial opportunity in a sense that the best argument for safe assets in Europe is indeed defence spending. We need both national and European funding. This is, in my view, a possibility to pave the way for a deep and liquid European capital market.

[Joe Weisenthal]

That's great. I'm glad we jumped right into this question of further integration and some of the stakes here, particularly as it relates to defence, because this has been something that's been on my mind a lot and I wanted to get in with you. When we're thinking about industrial capacity or thinking about industrial competition, scale is really important. The size of the market is very important. And this 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 conglomerate? To what degree, whether we're talking about defense or other, any other industrial, any other industrial sector, does there still remain a tension between the scale required for competitiveness and the desire for some sovereignty within each country to have their maker of X or.

[Olli Rehn]

Yeah, yes, there is that tension, 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, joined NATO in April 2023. And I recall my own time in military Service in the 1930s, early 1980s in the Savo Brigade in Eastern Finland in the city which used to be the headquarters of Masjern Mannerheim during the Winter War. Today that garrison area is actually a regional sub headquarters of NATO. So you see the change in terms of defence in this regard 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 and Investment Union, which aims at, say, 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 European.

[Tracee Alloway]

The other thing when it comes to building up a defense 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 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?

[Olli Rehn]

That's a very critical question in the European context. And that's why, as we are conducting joint European funding exercises in this regard, like the 150 billion euro safe instrument by the European Commission, it's essential that we purchase those arms and arms technologies by common procurement and by investing in joint research and innovation projects. That's the way to get more bang 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 also American products. In some areas, the US is more advanced. For instance, Finland is purchasing 64 F35s to replace our existing fleet of 64 F18s which date from the early 1990s.

[Joe Weisenthal]

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 trade and you just mentioned replace the plane 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 investment efforts across the Atlantic currently because of trade tensions?

[Olli Rehn]

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 tariffs is concerned, we have tried to estimate that it's a bit difficult as policymaking is fairly volatile. So it depends on the day or the week when you take the cutoff data. You know that perhaps. But our estimate, which is roughly done on the basis of the current US Tariff regime, is that it will hit growth in the Eurozone roughly by half a percentage point next year. But the good news is that the European economy is actually demonstrating resilience. We are still growing this year, probably around 1% or so, 1.2%. And we are projected to grow by 1 1.3% in the next two years, despite the headwinds of both geopolitical tensions and tariff wars.

[Tracee Alloway]

So you wrote something for Vox a few months ago called Europe Must Not Waste its Currency moment. And reading it, it sounds very much like there's perhaps an ambition to maybe replace some influence or some of the global role currently fulfilled by the US and the dollar with the euro. Is that how we should be reading it? Is there a conscious effort underway currently to expand the Euro's influence in the world?

[Olli Rehn]

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 we are seeing the international monetary system or the global financial system in transformation for the moment. And you have two main drivers in broad sense. On one hand, the geopolitical confrontation, and on the other hand, we have a technological disruption thanks to digital assets, cryptos, stablecoins, 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 renminbi, or the yuan, for instance, with the Road and Belt initiative and linking trade agreements to an enhanced role of the yuan. But, 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 limitations for the renminbi in the technological side. We've seen the growth of stablecoins more recently. We've seen certain volatility of cryptos. Last week, Last Friday, Just a little. Just a little, yes. And for instance, stablecoins, they are clearly intended to increase demand for U.S. treasuries to fill the federal deficit of the United States of America and thus to enhance the role 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 Ahengreen of Z Berkeley, that historical shifts in the international monetary system take place slowly and on the basis of the structural changes 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 the Euro can have a significant reserve role there on the condition that we can strengthen the foundations of the European economy insecurity in terms of economic dynamism and in Terms of digital sovereignty.

[Joe Weisenthal]

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 as not being at the forefront of the AI investments. With tech in general, there's a perception that the economies are still over regulated. It's not a great place to have a startup and so forth. What is the sort of the bull case or maybe the sales pitch for sort of the Euro Inc. The European economy. Where does growth come from in a dynamic, durable manner?

[Olli Rehn]

There is a vibrant startup community, for instance in Finland.

[Joe Weisenthal]

Yeah, Finland is actually Finland's probably the exception. You do hear about Finnish startups, France, many other countries.

[Olli Rehn]

We actually, we have a rather vibrant START community in, in Europe. By the way, welcome to Slash, even though I'm not the organizer, but Sluss is the well known major conference in in Helsinki.

[Joe Weisenthal]

We'd love to come to that. If you can introduce us next 2026, we'd love to come.

[Olli Rehn]

That's the major startup.

[Joe Weisenthal]

That sounds great.

[Olli Rehn]

Global startup even since early 2010s.

[Joe Weisenthal]

Okay, that's good to know.

[Olli Rehn]

The name slush comes from November because you have so much slush in November. That's why it's called Slash. But it's a very bright event in the darkest time.

[Joe Weisenthal]

But this is why everyone goes into the saunas the rest of the time to get out of the slush and stuff.

[Olli Rehn]

Yeah, well, I do it 12 months per year, three times per week.

[Joe Weisenthal]

Sounds great. It sounds fantastic.

[Olli Rehn]

Not bad, not bad, but even more serious. 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 say Silicon Valley or New York Stock Exchange or combination of both because it's easier to get venture capital. You have a large market which is culturally fairly similar, even though there are certain differences between California and Helsinki. Helsinki or California and say South Carolina, Right?

[Joe Weisenthal]

Yes. Okay.

[Olli Rehn]

So in any case, it's the scale up 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 are very much focused on funding of scale ups and growth companies.

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[Tracee Alloway]

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 these things at a low cost. And and in Europe, the big input costs 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?

[Olli Rehn]

We have to go back, 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 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 Russian fossil fuel, especially because its energy intensive chemical and other industries 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 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 regard. I add one thing. Often when you compare fossil energy and you compare fossil energy to say renewable energy, the capital costs in renewables are often higher, like say investing in wind parks or solar energy, but the running costs are quite low. Meanwhile, in fossil fuels, it's often, let's say, the reverse, so that the capital costs are not that huge, but you have very significant running costs. So once you are far enough in the green transition, preferably supplemented by nuclear energy, in my view, then our cost competitiveness in terms of energy will also be much better.

[Joe Weisenthal]

It sounds like the solution to some of what ails Europe is just everyone needs to be more like Finland. Sounds like you have it figured out. And everyone else in Europe needs to be more like that. No, for real, 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 is very competitive chemicals, though it doesn't get much attention. Obviously cars globally is just a huge story when you look at sort of the sputtering out of industrial production in Germany or just Europe more broadly, is it possible to decompose how much of it is undercutting on price from China versus the higher costs that have surged, particularly since early 2022.

[Olli Rehn]

Well, it is possible, but I don't have the figures of the cuff, but I recall that in 2022, 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 800 billion euros for fossil fuels instead of the long term average of 300. So we paid 500, 600 billion euros more that year, which then was roughly 3% of GDP. So in 22 we had. You can say that it was kind of an extra tax of every European of 3% of 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 fortune, it's about political will and action. We have been able to broadly adjust to the end of Russian gas in Europe, but we still have some work to do in many countries. You mentioned Germany. Germany still has work to do in order to reduce its energy costs in its industrial production.

[Tracee Alloway]

If you could wave 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 in everyone's house?

[Olli Rehn]

That's a good idea actually, even though fairly. Electricity.

[Joe Weisenthal]

Yeah, I was saying that's not helping with the energy.

[Olli Rehn]

Depending if you use electricity or wood in heating. I have both in the summer code. It's wood by the lake, so.

[Joe Weisenthal]

Good.

[Olli Rehn]

More seriously, if I could do one thing, I would complete the single market without delay and also create a genuine savings and investment union 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.

[Tracee Alloway]

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 or.

[Olli Rehn]

Well, for instance, concerning the savings and investment union, you have actually a long list of concrete decisions that it will require. 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 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 your retirement payments that you have to invest to the stock market or funds.

[Tracee Alloway]

Oh, I see, yeah.

[Olli Rehn]

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 Sweden in this regard because they have the most vibrant venture capital market also thanks to this quite well functioning capital mark.

[Joe Weisenthal]

I mean it makes total sense that, you know, I think of the euro area or the whatever, whatever version of it we want to talk about is it's an ongoing project. It's always a work in progress. It'll probably never be completely finished. There's always more to do. But this, to my mind, gets to the sort of like the challenge of domestic politics, right? And like, we all see what's happening here. We're October 16th, our government is shut down, but it feels like 20 various aversions 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 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 on a very different trajectory, are doing very well in the polls there, et cetera. How much of the. Yeah, it's great to say people here in D.C. at these conferences and here at Bloomberg love the idea of integrated markets, 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, it's a continuous tennis.

[Olli Rehn]

And you're right. So when you said that Europe or the European Union or the Eurozone, is a community or community of states that is in constant movement, I would wish that it would be in more rapid movement, but it is indeed an unfinished business and will continue to be so. That's why it is actually so fascinating and meaningful to work for Europe on these two brief points. First, the political battles or the political competition of the souls of the people are done now in Europe, in the member states. National politics are key here. And that's why I have a high regard for national politicians who face this challenge in the town 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 boost sustainable growth and job creation in Europe. That's the essence. Second comment is that it's quite interesting that even though we have had and continue to have populist movements challenging, say, the most interest parties in almost all countries of Europe, still the European Union is holding together and it is structurally kind of.

[Joe Weisenthal]

And it's still fairly popular, isn't it? Like, actually, the polls still show a fair amount of popularity of these, like multinational Europeans.

[Olli Rehn]

It is for instance in France the right wing party Iran has toned down its criticism concerning the Euro 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 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 discussion we were able to agree or the eight parliamentary parties were able to agree on a long term commitment to balanced budget and debt anchor, which is historic and it is also respecting the EU fiscal rules. Even the parties that have been quite critical on Europe are part of this agreement, which in my view is actually quite encouraging.

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[Joe Weisenthal]

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[Olli Rehn]

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[Tracee Alloway]

Earlier this year everyone got very excited about Germany finally wanting to spend right. We weren't going to be terrorized by the Black zero, the Schwarzenegger 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. 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?

[Olli Rehn]

It is primarily maturity of the member states. But you are right, there is a certain variety 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 are budgetary laws so they will be implemented. That's critical. But so other countries like all the Nordics. The Nordics together are 27 million people and relatively wealthy area in the globe. And all the Nordic countries are expanding their defense expenditure significantly. So are all the Eastern European countries and several of the Western European countries. So overall the picture is, I would say encouraging. I don't shout for victory yet, but we are on the right, right road here.

[Joe Weisenthal]

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 2010s 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 provided we don't want to give you like Euro crisis, ptsd, et cetera. But I do have one. There's, you know, I have a million questions about what that time, what it's really like. But I was talking about this with someone last night, you know, as the crisis Metastasized over time. There are all these. We're going to introduce a new bailout fund and I forget acronym after acronym.

[Tracee Alloway]

Instability mechanism and all this like.

[Joe Weisenthal]

Yeah, all these acronyms and acronym soup. Yeah. But then the crisis ended essentially on the day that Mario Draghi 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 and from then on everything. That was it. 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 was within its remit to close spreads?

[Olli Rehn]

I think it's a legitimate question and I have been thinking about that quite a lot. I have actually answered to this question in my book called Walking the High Wire, which is about the Eurozone crisis. In fact, it is true that once Mario said his now legendary words whatever it takes within our mandate to save the Euro, then the animal spirits, that was it. It turned around that day and the market started to believe that the ECB is functioning as the central bank, must function as the lender of last resort.

[Joe Weisenthal]

That was the moment became a true central bank in some sense.

[Olli Rehn]

Yeah, 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 afloat and support many countries, Greece, Portugal, Ireland, Spain, with the funding of the European Stability Mechanism or its precursor. In fact, now the countries that then were in the EU IMF programs have been in the past years, they have been one of the best performers in economic terms.

[Joe Weisenthal]

Everything has totally flipped since the 2000 and tens.

[Olli Rehn]

So they have reformed their economic structures to a large extent and they are much more competitive for the moment and their public finances are on a sound basis.

[Joe Weisenthal]

But there were years of pain in Greece and particularly Italy as well. Truly incredible economic damage and by some measures they would say on par with the Great Depression in the United States. Could Europe have gotten to that point? Could Mario Draghi have given the Whatever it takes speech in 2009? Did it have to wait as long as it did? And all these other mechanisms have to.

[Olli Rehn]

Try First, Mario Draghi started as ECB president in November 2011.

[Joe Weisenthal]

Well, you're right. So there was no way he could have given the speech in 2009. Could Jean Claude Trichet have given the speech in 2009, you have to ask him.

[Olli Rehn]

But I think it's.

[Joe Weisenthal]

I guess my point is, did all.

[Tracee Alloway]

Could they have moved faster?

[Joe Weisenthal]

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 everything else need to be tried first?

[Olli Rehn]

You are talking like I was talking to my wife in the sauna during the eurozone crisis from 2009 onwards. So pretty much I share your view.

[Joe Weisenthal]

Okay.

[Olli Rehn]

And if you take a more, let's say, historical view that. So when the euro was created, then the kind of major event like the Eurozone debt crisis was not perceived apparently in the minds of 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 ESM 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 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 financial stability issues were kind of forgotten at the time. So very strong focus also in the economists community. I think that's something that deserves some self criticism among the economists as well.

[Tracee Alloway]

We have to do an episode just about the Eurozone crisis at some point, but we can't do it right now.

[Joe Weisenthal]

In our five minutes left.

[Tracee Alloway]

In our five minutes left. So just going back to the start of this conversation, which was about whether or not this is a moment potentially for Europe. If Europe doesn't, the Eurozone 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 bloc 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? Is it share of currency used in global trade or something like that?

[Olli Rehn]

Well, first, what's the measure 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.

[Tracee Alloway]

European society, access to saunas.

[Olli Rehn]

Access to saunas. That's a basic human right.

[Tracee Alloway]

I agree.

[Olli Rehn]

Essential civil liberty.

[Tracee Alloway]

My mom had a sauna when she was in Estonia and it was amazing.

[Olli Rehn]

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 continue. And that is a very gloomy future for the Europeans. So I would very much prefer us 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 committed despite the current headwinds we are facing in terms of geopolitical tensions and trade wars. So we as Europeans, we are committed to multilateral international cooperation, and we want to work together with our partners, the U.S. global south and beyond.

[Joe Weisenthal]

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, like, we're. We're never gonna go back to the early 2010s or the 2000s where it seemed like we could just be like friends. Maybe I'm wrong, maybe I'm being too pessimistic, et cetera. When you think about the future of relation with Europe and China, where do you see that going? And especially, again, because our president 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? What are you thinking about in terms of the trajectory of that relationship? Because here it seems terrible.

[Olli Rehn]

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 is quite dependent on China, but it's a mutual dependency in many ways. And it's broadly free trade, not always so fair, but free trade. On the other hand, in China, the 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 the Chinese have fully realized this, but that has clearly seriously damaged the image of China in Europe because we see that they are an ally of Russia and they are trying to, with that alliance, they are trying to destroy our freedoms in Europe.

[Tracee Alloway]

All right, Oliver, thank you so much for coming on. OpBots. Really enjoyed it.

[Olli Rehn]

Thank you very much. Thanks for the discussion.

[Tracee Alloway]

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 2008, it took a while for the Fed and everyone else 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.

[Joe Weisenthal]

You know, it's like a cliche. Oh, you try everything else until you get to the right answer.

[Tracee Alloway]

Yeah.

[Joe Weisenthal]

It is tautological, isn't it? Isn't it? I guess, like, I guess by definition, when you get to the last thing right, you stop.

[Tracee Alloway]

You don't keep going.

[Joe Weisenthal]

By that point. It still seems 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 about this in the sauna with my wife. This very same topic. So that was sort of a response I wasn't expecting.

[Tracee Alloway]

You don't talk in the sauna with your wife about.

[Joe Weisenthal]

I just don't expect guests to have had the same conversation with their wife.

[Tracee Alloway]

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 news peg or an opportunity to actually do some of the things you've said you are going to do for a long time.

[Joe Weisenthal]

It's funny to think about policymakers having a news peg is if they're like, oh, let's do a podcast on this episode. What?

[Tracee Alloway]

They're just waiting for the headline now.

[Joe Weisenthal]

They're just waiting and then they're going to. 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 a war going on in Europe. And as you mentioned, when thinking about the future of China is the fact that China has been a important trading partner.

[Tracee Alloway]

That was really interesting.

[Joe Weisenthal]

That's 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. So if they're going to do something that sort of changes the trajectory of the European project, I see why now is the time.

[Tracee Alloway]

It's not the rubber hitting the road, Jo. It's the birch branch hitting someone's back in the sauna.

[Joe Weisenthal]

That's right.

[Tracee Alloway]

That's what's happening.

[Joe Weisenthal]

We had the title Oli Wren on the birch branch hitting the back in Europe. That's our title.

[Tracee Alloway]

Let's leave it there before we go any further.

[Joe Weisenthal]

All right, let's leave it there.

[Tracee Alloway]

Okay, this has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at TracyAlloway.

[Joe Weisenthal]

And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our producers Carmen Rodriguez at carmenarmon, Dashiell Bennett at dashbot, and Kalebrooks at Kalebrooks. For more Odd Lots content, go to bloomberg.com oddlots we have a daily newsletter and all of our episodes and you can chat about all of these topics 24. 7 in our Discord, Discord GG oddlots.

[Tracee Alloway]

And if you enjoy Odd Lots, if you want us to go to Finland and talk about Eurozone crisis days with Oli Ren, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Podcasts and follow the instructions there. Thanks for listening.

[Olli Rehn]

There are two kinds of people in the world. People who think about climate change and people who are doing something about it. On the Zero podcast we talk to both kinds of people. People you've heard of, like Bill Gates.

[Joe Weisenthal]

I'm looking at what the world has.

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[Joe Weisenthal]

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[Olli Rehn]

The creative minds you haven't heard of yet. It is serious stuff, but never doom and gloom. I am Akshat Ratty Listen to Zero every Thursday from Bloomberg Podcasts on Apple, Spotify or anywhere else you get your podcast.