Johtokunnan jäsen Olli Rehn Suomen Pankki The UPI-FIIA seminar Helsinki, 19.6.2017

1. Bank of Finland
The real economy matters
– Europe from crisis to
growth and reform
Seminar on the EU's Choice:
Perspectives on deepening and differentiation
The Finnish Institute of International Affairs,
Helsinki, 19 June 2017
119/06/2017
Olli Rehn

2. Suomen Pankki – Finlands Bank – Bank of Finland
Euro area: prospects are improving
 Europe’s stress test: economic performance has been improving
– Euro area GDP is growing for the 4th year in succession
– Employment increasing steadily
 Recent euro area forecasts revised upwards, by the ECB and others
– “Solid, broad-based growth”
– “Substantial monetary accommodation still needed”
– Underlying inflation still subdued, increasing only gradually
 The resumption of growth has been driven by several factors:
– ECB’s accommodative monetary policy, particularly since 2015
– A recovery in global economic activity
– Reforms already implemented in the euro area
Olli Rehn 219/06/2017

3. Suomen Pankki – Finlands Bank – Bank of Finland
Euro area real GDP, 2008-2019
19/06/2017 Olli Rehn 3
90
95
100
105
110
2008 2010 2012 2014 2016 2018
Euro area real gdp ECB forecast, june 2017
Index, 100 = 2008
Figures next to the bar are annual growth rates.
Sources: ECB and Macrobond. patu32427@BKTindMPE(2)
0,4
-4,5
2,0
1,5
-0,9 -0,3
1,2
2,1
1,7
1,9
1,8
1,7

4. Suomen Pankki – Finlands Bank – Bank of Finland
Lessons of the crisis for euro area reform
 Financial stability was initially underestimated, but
is being remedied via the Banking Union.
 Financial markets not always rational but prone to panic.
 Experiences from 2010-12: a ‘big bazooka’ is
necessary to contain financial turbulence.
 Currently composed of the ECB and the ESM together.
 Focus on the completion of the Banking Union.
 Based on the bail-in principle = investor involvement.
 Deal with the legacy issues, esp. the non-performing loans.
Olli Rehn 419/06/2017

5. Suomen Pankki – Finlands Bank – Bank of Finland
Commission’s roadmap for finalising EMU
 Two stages, 2017–2019 and 2020–2025, including:
 Financial Union
– Risk-reducing measures for the financial sector
– Common backstop for the Single Resolution Fund
– European Deposit Insurance Scheme
– Sovereign Bond-Backed Securities for the euro area
– Finalization and implementation of the Capital Markets Union initiatives
 Economic and Fiscal Union
– Strengthening of convergence between Member States’ economies
– Development of a common stabilisation function
– New EU multiannual financial framework
– Simplification of the rules of the stability and growth pact
 Democratic accountability and effective governance
– Stronger dialogue with the European Parliament
– Establishment of a euro area Treasury
– Establishment of a ‘European Monetary Fund’
Olli Rehn 519/06/2017

6. Suomen Pankki – Finlands Bank – Bank of Finland
Euro area reform: a Finnish perspective
1. Once in the euro, we’d better make it work well.
2. Learn the right lessons from the crisis: financial
stability is essential for sustainable growth.
3. Overcome the false contradiction between “either
federation or death”. No transfer union, but a
solid stability union. But next time the Euro area
should do better than only ‘muddling through’.
4. Ultimately, the real economy matters – not only
institutions. Each member state carries the prime
responsibility for economic reforms and growth.
19/06/2017 Olli Rehn 6

7. Suomen Pankki – Finlands Bank – Bank of Finland
Thank you
19/06/2017 Olli Rehn 7

8. Suomen Pankki – Finlands Bank – Bank of Finland
0
0,5
1
1,5
2
2,5
3
2010 2011 2012 2013 2014 2015 2016 2017
Euro area OECD countries
Y/Y, %
Sources: Eurostat, OECD and Macrobond. 31425@Chart45
Core inflation (CPI excl. food and energy)
Euro area core inflation still subdued
19/06/2017 Olli Rehn 8