By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Olli Rehn said on Monday that Europe should brace for a lengthy war in the Middle East, arguing that China may not really be pushing Iran toward peace.
In a post on LinkedIn, Rehn, who heads the Bank of Finland, said that “we should prepare for a prolonged conflict in the Strait of Hormuz,” where the parties were “engaged in a war of economic attrition.”
He pointed to the role of China in the war, which he said was “unlikely to seriously encourage the Iranian regime toward peace,” adding that Beijing was not overly concerned about the US becoming entangled in the conflict.
“This is not a good outlook for Europe, but it is something we should prepare for,” he added.
Financial markets appeared largely unfazed by the war, with enthusiasm surrounding artificial intelligence continuing to fuel strong gains in US equities.
“Whether the boom will last remains to be seen,” he said. “A turning point in the war in one direction or another during May or June is likely. That too will test the markets.”
He said economists were increasingly optimistic about AI’s potential to drive major productivity gains, often comparing it to transformative eras like the railway boom and the rise of the internet.
Those periods brought both rapid growth and sharp market corrections, with many companies thriving while others failed, he said, adding that even so, technological progress continued and productivity ultimately improved.
“Will it happen again as it did during the internet-driven phase of development: in the short term we overestimate AI’s industrial and economic transformative power, but in the long term we underestimate it? That is worth considering, since it affects all of us,” he said.
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