Uncertain times – implications for the EU’s economic and financial agenda

Developments in recent years have shown how quickly events can change the way we perceive the world and our expectations of the future.
Uncertain times – implications for the EU’s economic and financial agenda

Stefan Ingves, Governor of the Riksbank (©Riksbank)

The most recent and tragic example is the brutal Russian invasion of Ukraine – in one single blow the idea of a safe and stable Europe was literally shot to pieces. Once again Europe sees millions of people being forced to flee their homes and become refugees.

This devastating war came on top of the COVID-19 pandemic, a catastrophe that has so far led to millions of deaths globally. With the help of vaccines, the situation has improved in many parts of the world. But we are not yet out of the woods, especially not in poorer countries. Add to this climate change that is becoming more pressing by the day and you realise that the world is a very different place compared to what most people expected only a few years ago. What does this mean for us as Europeans and citizens of the EU, and what does it imply as regards the future direction of the EU?

Starting from a high-level perspective, cooperation and unity in tackling these challenges are key. This goes for the fight against global warming and viruses, as well as the response to the Russian aggression. Now all EU countries need to share the burden and take some pressure off the most affected countries. Without solidarity and cooperation within the EU, this situation will be much more difficult to handle. This is of course equally true for climate change and fighting the pandemic. But I would argue that this message is equally applicable to our day-to-day work with the EU’s economic and financial agenda, an agenda that is of central importance for central banks.

With this as a broad starting point, let me now focus on the implications for EU-cooperation in the economic and financial field. The ongoing events remind us, once again, of the importance of common rules and institutions, with less fragmentation defined by national borders. Only then can we have a truly single market that works for the benefit of all EU-citizens. However, the fact that a majority of EU-countries have joined the euro-zone while some remain outside, is testimony that integration still has some way to go. With the UK no longer an EU member, the block of non-euro countries has lost economic and political weight, a fact that will be increasingly obvious as countries that have already expressed an intention to join do so. I therefore expect the discussion on whether or not individual non-euro countries should join the euro-zone to broaden and gain momentum in the years to come, quite possibly with a greater focus on geopolitics.

And what about openness? The developments mentioned above have led some to think that the EU needs to be more self-sufficient in different aspects. This is to some extent understandable and in some parts obvious. Both the pandemic and the Russian invasion of Ukraine have illustrated European weaknesses in this respect, be it dependence on Russian oil and gas, safe access to vaccines or European companies lagging behind the US and China in the digital field.

However, in this endeavour to increase our self-sufficiency, known as “open strategic autonomy”, we must balance the desire for self-sufficiency against what history has taught us about the benefits offered by open markets and free trade. We cannot strengthen the European Union at the expense of international trade and cooperation. On the contrary, we must promote policies that ensure that the EU and its member states are fit to compete in the global arena, something that is not always the case. Let me illustrate with a couple of examples.

Financial markets in the EU are relatively integrated, but our capital markets are still fragmented and dwarfed by those in the US. This is nothing new – completing the so-called Capital Markets Union (CMU) is a task that has been on the agenda of EU policy makers for many years now, with initiatives coming in different shapes and forms. A number of decisions have been taken, but progress has been piecemeal and focused on lower-hanging fruit. More complex yet important issues, such as harmonising still widely varying insolvency frameworks, have largely remained unaddressed.

Progress is much needed if the EU is to start closing the widening gap in economic growth vis-à-vis China and the US. This is a process that takes an enormous amount of time since a truly integrated and efficient capital market cannot be devised by policy makers in isolation.  Policy makers can only remove the obstacles – the rest is up to the private sector. And the decisions of private actors will be based on many different factors and thus hard to predict. Often it takes time for market participants to change the way they do business.

This latter aspect is worth keeping in mind when we consider the implications of the UK leaving the EU – an event that in my view is truly sad for both the EU and the UK. One of the many implications is that the EU no longer has a global financial centre, further underlining the importance of making progress on the CMU. The economic fallout from the UK leaving the EU can still be affected, to a large extent, by EU actions. The fact that the City of London is no longer part of the EU does not necessarily mean that EU companies cannot benefit from the financial services that London can provide. An obvious example is clearing in UK CCPs, which is presently very common among EU banks.

Whether this represents a risk to financial stability and justifies relocation requirements or not is something that has been debated for many years now. The European Commission recently took a so-called equivalence decision, making it possible for EU entities to continue using UK CCPs for three years, while at the same time initiating a process of trying to create incentives for banks to move their clearing to EU CCPs. This is all fine – making the EU an attractive place to do business is laudable. However, it is important that such incentives do not, in themselves, create financial stability risks by, for example, lowering regulatory standards.

The same can be said of requirements for European banks. Boosting their international competitiveness must not be done by lowering capital requirements and other regulatory standards. Instead, action is needed to make banks more resilient, e.g. by making sure that long overdue consolidation of the European banking system takes place. This is an area where EU policy makers can make a difference, by reducing the regulatory fragmentation in the EU, taking further steps towards a truly single market.

In conclusion – these days it is important to remember that the EU, first and foremost, is a peace project that promotes cooperation and integration among its members. Together we are strong but we must not cave in to protectionism. Free trade and international openness will always be the basis for prosperity, and we need to make sure our economies are able to reap the benefits that this holds. Continuing this agenda is the best protection in an uncertain future, where the EU will be able to play a positive role for its citizens as well as for its neighbouring countries and the rest of the world.


The article is published in a series of articles in Obserwator Finansowy written by governors of central banks and distinguished economists. The series is under the special patronage of the Governor of Narodowy Bank Polski, Professor Adam Glapiński. The authors of the articles have agreed to waive their fees for writing the texts, and in exchange NBP shall donate the amount equivalent to the fees onto the account of the National Bank of Ukraine in order to support the NBU during the war. Below is a foreword by the Governor of NBP to the whole series:


On 24 February a huge tragedy occurred, in the face of which it is impossible to simply move on as if nothing had happened.

Nobody can remain indifferent to the misfortune that has befallen the Ukrainian nation.

All of us are shocked by the press reports, and particularly by what we see in the mass media.

Fighting Ukraine is not only its brave soldiers, but also an army of thousands of civilians trying to preserve normality in a country stricken by Russian aggression.

This army includes the staff of the National Bank of Ukraine, with whom NBP is in constant contact.

Aware of our Ukrainian colleagues’ needs, we have invited several central bank governors and eminent economists to share their knowledge on the economic processes taking place around the world.

It is rare for such a distinguished group of authors to feature in Obserwator Finansowy, which is published by NBP. It is also worth underlining that all the authors have waived the fees for their articles in order to donate them to meet the needs of our colleagues working in the National Bank of Ukraine.

I believe that you will find the series of these articles interesting, especially since they not only share the knowledge and experience of their authors, but also express goodwill towards the war-afflicted NBU.

 Prof. Adam Glapiński, Governor of NBP



Stefan Ingves, Governor of the Riksbank (©Riksbank)

Otwarta licencja