The ECB should mark a break when Trump threatens the EU

Frankfurt (AWP/AFP) – The European Central Bank (ECB) is expected to maintain its unchanged key rates on Thursday after seven consecutive decreases. However, despite President Trump’s threat to impose a heavy surcharge on imports from the European Union, observers say.

Christine Lagarde. For example, president of the institution, had warned in June that the ECB had arrived “at the end of a cycle of monetary policy”, after having had to counter the successive shocks of COVID-19, the war in Ukraine and the energy crisis, which had fueled a strong inflationary push.

This cycle had seen the Euro goalkeepers drastically increase interest rates for two years to contain price increases. Furthermore, before releasing the bridle since June 2024 to support stabilization of inflation.

Inflation very slightly progressed in June in the euro zone, at 2% over a year, after 1.9% in May, but remains ecb should mark break when online with the objective of the ECB.

Ms. However, Lagarde repeatedly repeated that the ECB is “in good position” to face economic uncertainties. Consequently, in particular those related to customs duties, another indication that the institution should decide on Thursday a break in the monetary softening cycle.

Uncertain projections

The influential director of the German central bank. Joachim Nagel, clearly pleaded for the status quo to “reassess” the situation at the September meeting.

In sight: persistent uncertainty in the commercial conflict with the United States and its uncertain effect on prices.

A new step was reached on July 13. when the American president threatened to apply a 30% basic tax on August 1 on August 1 – a price that could further increase in the event of EU retaliatory measures.

This mass rate far exceeds the most extreme scenarios that the ECB was established in an attempt to refine its. economic forecasts for the euro zone.

According ecb should mark break when to Berenberg Salomon Fiedler’s economist. a trade war “would weigh on still fragile growth and could delay the recovery beyond 2025”. Current uncertainty already slows down investments and complicates business decisions.

And the impact would also be felt in the United States where “30% taxes on European exports would increase the. inflation of American consumers of approximately 0.3 points”, further complicating the task of the federal reserve to lower its rates.

In June. the ECB had built its economic projections on the assumption of American customs duties limited to 10% on European exports.

However, a trade agreement remains possible by early August, which could defuse the crisis.

Hence the urgency to wait, believe several members of the BCE Governors’ Council.

Isabel Schnabel. influential member of the Management Board, estimated that the bar was “very high” for a new drop in rates this week, in an interview with Econostream Media.

Exchange rate

The deposit rate, which had culminated ecb should mark break when at 4.0 %, was lowered by levels of 0.25 points to each meeting, to reach 2.0 % in June.

This level corresponds to the heart of the range of the “neutral” rate estimated by Ms. Lagarde (between 1.75 % and 2.25 %). that is to say a level which does not stimulate or slow down the economy, and which therefore makes “very improbable” a new drop in the rent of money, according to HSBC economists.

Another development to be monitored for the Euro guards: the Euro flight compared to the dollar

The common currency appreciated between April. when Donald Trump launched the trade war, and at the end of June, going from 1.08 to 1.18 dollars for a euro.

For exports, a strong euro makes European products more expensive abroad, therefore less competitive for sale.

Conversely, this lowers the cost of imports, especially energy, which can slow inflation in the euro zone.

“Current exchange rates. if ecb should mark break when they maintain themselves, would mean that ECB’s inflation forecasts for this year and next year would be slightly lower than those anticipated in June,” comments Carsten Brzeski, at ING, arguing for a drop in rate in September.

AFP/Al