Governor Olli Rehn: Interview in Süddeutsche Zeitung, 30 June 2025

Governor Olli Rehn
Interview in Süddeutsche Zeitung, by Markus Zydra
Published on 30 June 2025
an English translation of the interview

Last week the world feared Iran could close the Street of Hormuz which would have led to extremely high oil prices. Now every horror scenario is off the table. How does ECB decide on its interest rates in a turbulent world?

The ECB takes decisions each meeting on the basis of the recent data and analysis and of course our judgement. In many ways these days, monetary policy is as much art as it is a science. It's important to be consistent in its decisions, but at the same time to be agile.

How does the new global disorder affect the economy?

It is hurting growth and the economy in Europe especially through the pervasive uncertainty that this trade war and the military conflicts are creating. This is harming both consumer confidence and investor confidence. But despite all that: Euro area growth in fact remains supported by strong real wages, solid employment, lower interest rates and increased defense spending will also help offsetting the negative impact of tariffs over the medium term.

The inflation in the Euro area has come down to 1.9 percent, that is below the ECBs target of 2 percent. Has the battle against inflation been won?

The trade war seems to dampen inflation in the Euro area rather than increase it. One reason is the weak US-Dollar. In the US the situation is different because there we are talking about the whole economy facing an inflation rate shock due to tariffs. But there is no reason for self-complacency in Europe. We must be vigilant now to both directions. On one hand, of course, we have to closely monitor geopolitical developments and price developments in the energy markets in particular. On the other hand, risks of inflation undershooting our target should neither be underestimated.

The Russian war against Ukraine has been going on for more than three years. The sharp rise of energy costs 2022 came as a shock to the economy. Is this conflict still affecting the ECBs fight against inflation?

It is certainly affecting the operating environment of monetary policy. The EU has now largely 30 percent higher energy costs than the US. In Germany it is even double. In the years after 2022 you could see how important the energy mix in each country is. The top three in terms of lowest inflation rates in Europe included two countries, France and Finland, largely because we both have nuclear power and both have a big share of renewable energy of total energy production.

Do you see a turnaround in Germany under the new government and will Germany lead the Eurozone out of its economic malaise?

In my view, the new approach of Germany is indeed very promising as regards supporting growth and productivity. Germany's leadership is vital not just for its own growth, but for the growth and cohesion of the whole Euro area. Of course, there are no quick fixes, and no single measure will bring about a rapid shift. The European industry can be supported by investments in defense and infrastructure. But what is needed is better coordination of defense investments and expenditure so that we get better quality, high volumes and not only higher prices. It's very important that Germany is paving the way now. I remember that back in 2012/2013, the European Commission encouraged Germany to raise public investment and ease the bottlenecks in infrastructure. These structural weaknesses are still there today.

Germany is pretty much divided on how to counter the Russian aggression. A manifest by the German party SPD stirred some irritation, because it suggests more or less a rerun of Willy Brandts Ostpolitik. What is your take on this with a Finnish lens?

In fact, Willy Brandts Ostpolitik had its equivalent in Finland, with the active neutrality policy of President Kekkonen and the Finnish government in the 1960s and 70s leading to the Helsinki Final Final Act from July 1975. Both, Germanys policy, and the Helsinki Final Final Act facilitated in their own way the fall of the Berlin Wall and the unification of Europe. It was a combination of containment and cooperation. But politics is always made in a certain place and time.

And the times are different now?

Yes, Putin's aggressive Russia, which is a revisionist power, is a very different political system than that of the Soviet Union under Leonid Brezhnev. We should not be naive about Putin's Russia. It doesn't stop at the front line of Ukraine. It has broader ambitions. So, the response to Russia's imperialist, brutal aggression must be firm and consistent. That is why the essential thing today is to support Ukraine in achieving a sustainable peace agreement.

The ECB is against the confiscation of the Russian Central Bank assets, which is about 200 billion Euro. Should Ukraine get that money?

It is in the hands of the European Council, the Chancellor and the Prime Ministers. Personally, I have for a long time been in favor of utilizing the Russian assets in a meaningful way for the support of Ukraine and its reconstruction. I'm aware of the legal challenges. The G7 and the European Union are currently looking for solutions. If there is the will, there is a way.

Unlike Europe the US so far has ruled out creating a Central Bank digital currency. US president Donald Trump relies on private initiatives such as cryptos and stable coins. What does it mean for Europe?

We see major risks brewing in the stable coin market, which today is about 200 billion Euro. And for instance, the stable coin Tether was the 7th largest buyer of U.S. Treasuries last year. Of course there's a political motivation here, because the US administration aims at boosting demand for U.S. Treasuries. But the link of stable coins to the regular banking and financial system could cause a lot of instability. I'm very much in favor of innovation, but we want to do it in a stable way by developing the digital euro as the digital backbone of the payment systems in Europe.