ECB Official Backs Joint Debt for EU Defence Amid Low Inflation Risks

European Central Bank policymaker Olli Rehn stated there are no clear signs of second-round inflation effects in the euro zone, contradicting widespread concerns about price increases due to energy prices. Speaking at an event in London, Rehn emphasized that wage growth and inflation expectations remain moderate.

He added that the current labour market tightness is not as evident as it was in 2022 after the invasion of Ukraine and the post-COVID crisis, although the central bank is closely watching this development. The ECB policymaker backed the use of jointly-issued debt for strengthening the region's defence capabilities, which would create a highly liquid, euro-denominated safe asset.

Rehn also emphasized vigilance amid geopolitical and economic uncertainty, noting that maintaining anchored inflation expectations and monitoring political developments, including upcoming elections in Europe, are vital for smooth monetary policy transmission. The ECB has a toolbox of viable instruments to ensure this, he stated.