Philip R Lane: Europe and the world economy
Keynote speech by Philip R. Lane, Member of the Executive Board of the European Central Bank, at the Asian Monetary Policy Forum, Singapore, 22 May 2026.
Introduction
It is an honour to be invited to contribute to the Asian Monetary Policy Forum. My topic today is to examine the role of Europe in the world economy. International trade, international finance, international technological diffusion, global commodity markets and global value chains generate many types of inward and outward linkages between Europe and the rest of the world.
In relation to the linkages between Asia and Europe, developments in Asia are an important driver of the euro area outlook. Along one dimension, shocks to the Asian economy have global reverberations. Along another, the transmission of global shocks is highly intermediated through the centrality of Asia in global supply chains.
My speech today has three parts. I will first review how the euro area economy has evolved over recent decades and how its relationship with the global economy has changed. In the second part, I will introduce some of the ECB modelling tools that we use to analyse how global forces operate on the euro area. Last, I will discuss the role of global forces in shaping the ECB monetary policy stance.
The role of international factors in the euro area
Adjusting for its size, the euro area is a highly-open economy. Trade openness – measured as the sum of exports and imports relative to GDP – is high by international standards. The participation of firms in the euro area in regional and global value chains has doubled over the last three decades (Chart 1). In global production chains, exports often include imported intermediate goods and services, so the full value of an exported product is not necessarily generated in the country that ships it. Euro area output is absorbed across many regions of the world, as illustrated by the left bar of panel c) in Chart 1, with Asia representing a more important final destination than the United States. The right bar of panel c) in Chart 1 shows that foreign value added (with a prominent role for Asia) accounts for a sizeable share of total euro area absorption. All in all, the profile in Chart 1 suggests that the euro area economy is highly sensitive to both positive and negative global shocks.