The ongoing wars in Ukraine and Iran increase global uncertainty, while German and European economies face structural challenges. The extent to which the conflict in the Middle East will affect the economic and financial systems depends heavily on its duration. Experts agreed on this during the panel discussion “Geopolitical Risks and the European Financial System” on March 4, 2026. The event was hosted by the Society for the support of the Leibniz Institute for Financial Research (SAFE e.V.).
The panelists included Matthias Danne, Vice Chairman of DeKaBank and Chairman of the support association; Heiner Herkenhoff, Chief Executive Officer of the German Bankers Association; Alexander Rodnyansky, Associate Professor at the University of Cambridge and former economic advisor to the President of Ukraine (from 2020 to 2024); and Borges Hess, EY Senior Manager and expert in the energy and defense sectors. Florian Heider, Scientific Director at SAFE, moderated the event.
The new geopolitical landscape requires adjustments
How can Europe foster innovation and growth, and how can it thrive in a world where the rule of law is losing influence? Danne emphasized: “Rules only make sense if they can be enforced.” He called for economic resilience to be given higher priority. This includes strengthened public-private partnerships (PPPs), in which the government creates incentives for private investment, for example through usage guarantees.
Rodnyansky explained that the struggle for survival during the war in Ukraine has brought about enormous structural change. Europe could learn lessons from this, for example, in the realm of regulation. In war, he said, it is all about “acting quickly and adapting.” To be innovative, small businesses in particular must not be overregulated. Regarding the changes in Ukraine, he noted: “Unfortunately, it all comes down to which incentive system you’re in.”
Interdependencies complicate realignment
Strengthening Europe’s sovereignty requires significant capital and more cooperation. Herkenhoff pointed to a paradigm shift in defense financing, for which banks had previously been sharply criticized. Overall, he said, private-sector investment is too low. He called for simplifying regulations and more deeply integrated European capital markets to foster investment.
Capital markets are also needed elsewhere to finance Europe’s sovereignty. For example, in the energy sector, in developing digital and technological independence from U.S. services, and in reducing reliance on Chinese raw materials and technology.
The risk of stagflation is rising
The overall situation is tense, as Heider also emphasized. He sees the possibility of stagflation looming over Europe, with stagnant growth coinciding with inflation driven by energy prices. According to the experts participating in the discussion, the duration of the conflict in the Middle East will be decisive. The longer it drags on, the more likely a shift in economic expectations becomes.
