Bank of Finland Governor Olli Rehn's interview with Politico's Johanna Treeck 1.4.2025

An edited version of the transcript

On seizing frozen Russian assets:

It is a matter that is in the hands of the European Council. Personally, I have for a long time been in favor of utilizing the frozen Russian assets in a meaningful way, for the support of Ukraine and its reconstruction. In the current context it is possibly an element of broader negotiations for a just and lasting peace in Ukraine.

In recent days, it seems that thinking in the White House regarding Russia has evolved. It has become clear that President Putin is quite apparently not interested in productive, good faith negotiations with Ukraine. This seems to have shifted attitudes in Washington to realise that Putin cannot be trusted, as was communicated by Finnish President Alexander Stubb who visited Trump over the weekend.  

I'm aware of the legal challenges, but this has been discussed in the G-7 context. And if there is a will, there's a way.

On possible implications for the euro and Europe’s role in global financial architecture:

If the concern is that, for instance China, Russia and Iran would be developing alternative payment systems because of the use of frozen assets for supporting Ukraine and its reconstruction, one might ask whether they would not do that in any case. They have for some time already been working on alternative payment systems.

On whether Trump presidency could boost role of the euro/hit the dollar:

The key is how we facilitate the security and resilience of the European payment system in which the digital euro is one essential solution.

It is not in the interest of Europe that the US economy would do poorly. The US dollar has survived quite challenging times before.  People often forget that the Bretton Woods system was based on the US dollar being pegged to gold. That collapsed in 1971 when John Connally, the Treasury Secretary of the time, declared to the Europeans: “the dollar is our currency, but your problem”.

While I have this realistic view concerning the US dollar we are monitoring developments there. In case the institutional foundations of the US dollar were to be seriously undermined, and here I am referring to the rule of law, democratic principles and civil liberties, then we may see unforeseen developments.

We are monitoring the developments in US financial sector with concern as regards the deregulatory drive and the mainstreaming of cryptocurrencies.

On tariffs response:

In my view, we cannot lie down in the fire, not even in friendly fire.

It's important that the European Union prepares proportionate countermeasures to improve its negotiating position with the aim of negotiating a solution which is better for everybody.  The last thing we need in the context where there is Russia's illegal, brutal war going on in Ukraine and on European soil, is a trade war between allies.

There are two different scientific logics behind the reasoning concerning how to deal with tariffs and trade protectionism. There is an economic and there is a political logic. Many economists advocate non-retaliation, because tariffs would harm oneself. But on the other hand, it's not only about economics, it's also about politics, and politics does affect the economy.

On Mar-a-Lago:

There is, to my knowledge, no formal [Mar-a-Largo] proposal on the table. The working assumption, however, seems to be that the other countries would do as they are told to by the US with them having no agency of their own. I don't think this is the case, as we can see in the actions of the EU countries, Canada and many others.

On defense financing:

Europe is facing an existential crisis concerning its external security from Russia. Therefore, we need exceptional measures in these exceptional times.

We need to find a combination of national and European solutions.

The use of the escape clause provided under new EU fiscal rules provides room for increased defense spending, as long as it is done cost-efficiently while ensuring long run debt sustainability.

It's extremely important that Germany is paving the way and showing example in increasing defense spending, and Germany has fiscal space to do it.

Increased defense spending in the member states will require some re-prioritization of the national budgets. But I am aware that defense cannot be financed by increased taxes or reducing other spending items alone. That's precisely the reason why we need a European element as well.

We will have to find a way of having European financing for common projects of this European public good, which is external security of the EU and its Member States.

The Commission is proposing to borrow €150 billion for loans to national governments. I think that’s the right way forward. In this context, we should also consider common European safe assets.

On ECB’s role:

The most important thing the ECB can do for European security is ensuring price stability and financial stability.

Our current collateral framework treats companies in the defense sector equal to the companies in other industries. So there's simply no hindrance for them.

On interest rates:

If the March baseline forecast were to materialize, it would imply there is some room for rate cuts.

Quite a lot has happened since the 6 March meeting. The two main things are tariff increases and decisions to spend more on security and defense in Europe. If you look at the impact of these two factors, they may create both upside and downside risks to inflation. While increased defense spending would probably increase GDP over the medium term compared to the baseline, the growth outlook (in the euro area) is still subdued and growth risks are predominantly to the downside.

In my view, if the data verify the baseline and indicate that to reach our goal of 2% symmetric inflation target over the medium term, the right reaction in monetary policy should be to cut in April, we should indeed do so. But if data indicate something else, then we would pause.

You referred to the estimates Finnish research institute ETLA [the 0.5-1.6 percent hit on GDP]. Our estimates for the eurozone are in the same ballpark.  If you factor in elevated uncertainty because of trade policy, the impact could be even larger.

It's important that in the current conditions of pervasive uncertainty, we preserve the freedom of action in our decision making. It is important that we will not pre-commit to any rate path.

You ask should we stop at the neutral rate, which hovers around 2%, or move towards accommodative rates? That depends on our assessment of reaching our price stability target in light of economic developments and the materialization of geopolitical and trade policy related risks.

On asset purchases:

Our primary mandate is price stability. That is what drives our monetary policy, and the policy rate is our primary tool. Furthermore, we have the well-known tools, including the TPI and the OMT. This is not a topical issue now. In any case these tools will remain in our toolbox. We can consider using them as needed but not in the current circumstances.