By David Barwick – FRANKFURT (Econostream) – European Central Bank Executive Board member Isabel Schnabel on Thursday portrayed the euro area as having largely restored macroeconomic and financial stability, while arguing that the bloc’s central economic challenge had shifted to reviving growth.

Speaking at the Peterson Institute event in Washington, Schnabel said the euro area had made “major progress” since the global financial and sovereign debt crises and described inflation as having been “brought back to target without recession or financial instability.”

She also presented the euro area as more financially integrated and its banks as stronger than in past crisis periods. Financial markets had become more integrated, while banks had solid capital ratios and were more profitable, she said, pointing to firmer bank capital, stronger return on equity and lower sovereign spreads than during earlier episodes of stress.

Against that backdrop, Schnabel said that “reviving growth is the euro area’s key challenge” and organized the path forward around three priorities: integration, innovation and sovereignty.

On integration, she argued that reducing internal and external trade barriers offered major upside. She highlighted both intra-EU and extra-EU trade and pointed to the significance of existing and prospective EU free-trade agreements.

On innovation, Schnabel pointed to artificial intelligence and defense-related research and development as potential drivers of stronger productivity growth. Her presentation included estimates showing a larger total factor productivity gain under faster AI adoption and also showed positive cumulative GDP multipliers from public R&D spending.

On sovereignty, she argued that Europe needed to reduce dependencies, in particular on energy and raw materials.