olli rehn : two decades of the euro – which way forward? speech by mr olli rehn, governor of the bank of finland, at a bank of finland webinar, helsinki, 10 february 2022. * * * distinguished guests, ladies and gentlemen, on behalf of the bank of finland, may i wish you a very warm welcome to this online event, in this the 20th anniversary year of the euro banknotes and coins! i was talking with the other speakers just before the start, and we were delighted to see that there are so many of you joining us online today. we shall do our best to provide you with fresh perspectives on the matters at hand. feel free to join the discussion in the chat section at any time during the event. although we may all have europe ’ s geopolitical tensions and russia ’ s power politics uppermost in our minds, it is also always worth looking periodically at the state of european integration and the outlook for it. new year ’ s day marked the 20th anniversary of the moment when some 300 million europeans got their hands on the new currency, the euro. the euro became one of the most tangible achievements of european integration and a reflection of a common european identity. the financial and debt crises of the last decade constituted a severe stress test for the european union. europe passed the test – stumbling, maybe, but, as they say in eastern finland in particular, stumbling can prevent a fall. the crises demonstrated that the common structures of monetary union must be further strengthened. they must be designed so that each member state bears, and knows that it bears, primary responsibility for its own economic policies. monetary union ’ s resistance to shocks is being boosted by the development of banking union and the european financial markets. nevertheless, we still have some way to go. particularly in regard to the capital markets, we are still some way behind the united states, a fact reflected in the availability of risk capital for growth businesses and smes in the eu. for finland, the first two decades of the euro have brought numerous concrete benefits from the common currency. but in regard to economic developments we can also easily find much to improve in the decades ahead. debates around the euro often forget the benefits finland enjoys as a member of monetary union, such as lower transaction costs for international trade and travel as well as a reduced exchange rate risk. the greatest benefit finland has received has come from stability and the increased credibility of monetary policy as well as the consequent

be welcome to help us understand how different policy frameworks perform in macroprudential policy, and whether and how the current structures could be developed. on strengthening the european economy and financial stability let me conclude by sharing some thoughts on the strengthening of the european economy and financial stability. in my speech two years ago, i emphasized that both financial stability and the welfare of our 3 / 5 bis central bankers'speeches citizens depend ultimately on europe´s ability to create sustainable growth. this is now even more pressing due to the lost output and lost growth potential caused by the pandemic. promoting sustainable growth in the eu requires decisive and ambitious actions on several fronts : in deepening the eu´s internal markets, strengthening public finances, developing common fiscal arrangements and combating climate change, to name but a few. for the sake of time, i´ll focus here on only one crucial precondition for creating sustainable longterm growth ; that is, the ability of the eu´s financial architecture and financial system to prevent and mitigate systemic financial crises and to provide sufficient financing for the private sector to generate investment and economic growth. the creation of the banking union was a crucial step in improving the resilience of the european financial system. the european financial system has weathered the pandemic with the help of a forceful policy response and the greater resilience of financial institutions. in the next major financial crisis – which will come sooner or later despite our best efforts to prevent it – things might not be that rosy. to prepare for the next crisis, we need a common european deposit insurance to reduce the risk of bank runs, to strengthen depositor confidence and to loosen the negative feedback loop between sovereign debt sustainability and bank funding. another piece of unfinished business in the eu is the capital markets union. european firms – especially small and medium - sized companies and firms offering digital services – are still far too reliant on bank funding. advancing cross - border capital mobility in the eu will require politically difficult reforms in national taxation and insolvency laws. lastly, while not jumping to any definitive conclusion right now, it is worth exploring the pros and cons of a european safe asset with an open mind. one clear benefit of it would be to deepen european bond markets and promote the capital markets union by acting as an anchor for the pricing of riskier financial instruments, thus enhancing access to finance for businesses, not least the smes. this would support much needed productive investment in europe. moreover,