EMU Lab | Navigating an uncertain world – conversation with Odile Renaud-Basso, President of EBRD

Thank you very much, Marco. It is a pleasure to be here. Thank you for inviting me to this wonderful place. It is an honor to speak at the European University Institute and the EMU Lab. As you highlighted, I bring my very operational experience of a multilateral development bank working both in EU countries and in the European neighborhood, where the question of fragmentation is really challenging us. I will come back to that. Managing an institution that is very operationally focused, making loans and projects, coming here is a good opportunity to step back and reflect on the scale of the events and risks we face. Looking back at the history of Tuscany, with the rivalry between Florence and Siena, the continuous wars in the Middle Ages, pandemics, early forms of economic sanctions with the pope taking measures against Sienese merchants, reminds us that fragmentation is part of our history. Risks have always existed but can be addressed. As an introduction, I want to bring four very recent dates: 1991, 2020, 2022, 2025. 1991: the EBRD was established after the collapse of the Soviet Union, aiming to build a post-Cold War era in Central and Eastern Europe. Economic prosperity was seen as essential for lasting peace. It was the impression of a new era, developing market economies and democracy in post-Soviet countries. That was the core of the bank's mandate, focusing on private sector development and transforming communist centralized economies to open market economies. This was also the time of Fukuyama's 'End of History', which has been over-interpreted. Clearly, 1991 was not the end of history nor the start of the final domination of liberal democracies. 2020: the global eruption of the COVID pandemic. International borders shut down, global supply chains were disrupted. We realized that security of supply could become a major concern. Countries competed for medical masks and vaccines. The coronavirus was defeated by vaccines, but the story continues. 2022: full-scale war returned to the European continent, at the heart of the EBRD's historical countries of operation. The war on Ukraine launched by Russia is not an isolated moment; it started with the annexation of Crimea and destabilization of Donbas in 2014. But 2022 is a true turning point in scale and challenges. 2025: now, a new page in economic globalization as we knew it, with all its limits and flaws. Globalization rested on promotion of international trade, reduction of barriers and tariffs, and common rules for settling disputes. This is deeply challenged. It started before, with Trump's tariffs, but the scale now is different. We are confronted with a new approach to tariffs; volatility is extreme. We don't know if and when they will apply, whether US courts will stop them, or what the economic consequences will be. The de facto embargo between the US and China has been avoided for now, but the threat of trade wars persists. We will live with this challenge for long. The US shift is massive, with repercussions on how the EU thinks about trade and globalization. With this background, we still have to cope with stagnant economic growth, urgent need to address climate change (probably the largest crisis for humanity), demographic pressures, migration imbalances, and new challenges: scaling up defense, enhancing energy security, strengthening supply chain resilience. I will briefly introduce two reflections: on the nature of the risk and how to address them at different levels. On the nature of the risk: global and domestic risk of fragmentation. At the global level, reasons for fragmentation are complex. Politically, international institutions like the UN and Bretton Woods institutions after WWII facilitated important outcomes including poverty reduction, but the multilateral system has been criticized for not preventing conflicts like in Ukraine and Gaza, and not providing quick answers to challenges like climate and biodiversity. Economically, since WWII the drive for greater economic integration reflected lessons from the interwar period. But now this model is deeply challenged. Globalization raised living standards and took many out of poverty, but also created inequality within and among countries, a factor for migration and instability. In developed countries, criticism of free trade has grown against industrial and job market crises. The question is whether we were right to assume that economic players would be interested in fair competition, and whether we underestimated free riding and uncooperative behaviors. These fragmentation trends are not new but have been amplified in recent years and months. The main threat is that global fragmentation risks undoing decades of development gains and weakens global common priorities like international order, financial stability, and combating climate change. The cost could be huge. For international organizations like ours, it represents a profound challenge because our mission is to bridge divides and foster cooperation. At the European level, we see similar trends. Brexit is a good example: fragmentation is not only seen as a risk but as a desirable horizon. In Europe, growth is plateauing, debt levels are rising, social challenges are many, and we see the rise of populism. Positioning towards Ukraine and Russia is a symptom of divides across the continent, including among EU member states. It was striking to see some countries attending the May 9th parade in Red Square while others celebrated Europe Day. Europe stands at a crossroads. If eurosceptic forces continue to rise, they could undermine cohesion and cooperation. We see the results of recent elections in Romania and Poland. This could mean at minimum limited progress or even rolling back European achievements. It would be too simplistic to say populist parties are solely responsible. We must face systemic aspirations for stronger, more resilient, more protected societies. Two avenues: fragmentation as a solution, but in my view more fragmented and divided societies will not protect from global turbulence. The alternative is developing a new collective ambition. Two key questions: Is Europe still relevant? Is multilateralism still relevant? My answer is clearly yes on both. To avoid the emergence of two Europes and divergences, we need to create new dynamics and work on core priorities for deeper EU integration: first, focus on continental security; second, improve EU competitiveness, especially fostering industrial and innovation capacity, closely related to deepening capital markets; third, pursue the green agenda as a source of comparative advantage. In this same room, Paolo Gentiloni framed the problem of Europe being reliant on the US for defense, China for supply chains, and Russia for energy. We need to get out of that circle. The shock of Russia's full-scale invasion of Ukraine revealed two insights about Europe: the ability to react rapidly and innovate, and the general vulnerability. The issue is not so much Europe but the lack of Europe. The debate on common security and defense policy is overdue and needs traction. My personal conviction is that the world fragmentation and the logic of superpowers mean the European level is relevant. European countries individually cannot address these challenges on their own. The role of MDBs is also very relevant. There is a paradox: we see increasingly global problems that need global solutions, yet trust in shared solutions is weakening. That is why multilateral institutions are important. They need to deliver and link global solutions to global problems. There has been a lot of focus on leveraging MDB finance, especially when budgetary capacities are limited. It is more important but also more challenging when shareholders are divided. Still, when views are so divided, having institutions that bring different views together is the best way forward. The EBRD is interesting because it is multilateral with the US, Japan, China as a small shareholder, Canada, G7 as a majority, and European countries have a majority. We are close to the EU but also bring non-EU countries to support our agenda. We adjust our model, for example focusing more on diversifying supply chains, regional integration, and global public goods like climate. We leverage our balance sheet to bring private investors alongside us. Just a last point on the impact of geopolitics: we work in post-Soviet countries at the forefront of confrontation between blocks. Central Asia is close to China and Russia but important for the EU for raw materials. These countries want to diversify. The Caucasus and Ukraine are key. We also invest in the North Mediterranean. The role of MDBs is to bring support and standards to enhance economic growth and development capacities. I will stop here so we have time to discuss.