Central Bank governor says 'genuine single market' needed to keep savings within Europe

Central Bank governor Gabriel Makhlouf. Mr Makhlouf said there is a critical need to strengthen Europe’s single market as the foundation for mobilising the continent’s substantial savings. Picture Conor McCabe Photography. 

The Central Bank of Ireland governor Gabriel Makhlouf has urged European policy makers to develop a European safe asset to anchor institutional capital and prevent European savings from being pulled outside the EU.

Mr Makhlouf made his comments on Thursday night while addressing a meeting of European finance ministers in Dublin. The comments also come as Tánaiste and finance minister Simon Harris will give further details of Ireland's new personal investment accounts as part of Budget 2027.

CSO data published last week shows €1 in every €5 of disposable income in Ireland goes into savings. Speaking in Eurofi, Mr Makhlouf said there is a critical need to strengthen Europe’s single market as the foundation for mobilising the continent’s substantial savings.  “Mobilising Europe’s savings requires us to ensure that our economy is productive and innovative and operates as a genuine single market, creating the prosperity that generates capital, that supports the longer-term wellbeing of Europe’s citizens.” Mr Makhlouf said.

The governor noted that euro area households currently hold nearly €10 trillion in deposits, with savings rates remaining above pre-covid levels. However, a significant proportion of these savings continues to be invested outside the European Union.

“The question we should be asking is not simply how to redirect those flows, but why those returns are perceived to be higher outside Europe, and what we can do about it,” Mr Makhlouf said. “Fundamentally, it comes back to the performance of the real economy.”

Mr Makhlouf said the Single Market remains Europe's most powerful and underutilised asset. "Thirty years after its creation, significant barriers remain, particularly in services. Removing those barriers would not only boost productivity directly; it would also enable a step change in the development of Europe’s capital markets.” 

The Governor said a European safe asset would prevent European savings from being drawn towards alternatives outside the EU. “In a more fragmented world, this matters more than ever. By harnessing our Single Market alongside our international openness and leadership, we can ensure that Europe’s economic future is not only secure but strong.”

Earlier, Mr Makhlouf declined to rule out an interest-rate hike in October if circumstances require it. Mr Makhlouf told Bloomberg Television on Thursday that while there’s currently no worrying sign of inflation spreading into wages, officials will take each decision on borrowing costs as it comes.

“At a time of uncertainty, every meeting is a live meeting for the European Central Bank,” Mr Makhlouf said when asked if that was the case for the next one on October 29. “You can’t rule out anything that might happen in future meetings, nor can you rule them in.”

The governor spoke in the wake of the US Federal Reserve’s rate hike this week, while the Bank of England held interest rates at 3.75% on Thursday. 

With oil and natural gas prices continuing to soar, euro-area inflation is poised to quicken past its current level of 3.3%, even further from the ECB’s 2% target.

“At the moment, we’re certainly not seeing signs of concerning second-round effects but it’s pretty clear that the shock, the energy shock that started with the war in Iran isn’t going away,” he said. “The risks to inflation remain on the upside.”

Additional reporting by Bloomberg