ECB Insight: Sudden Rash of Policymaker Comments on Trump Reveals Concern

19 November 2024

By Marta Vilar – MADRID (Econostream) – Two weeks after the US presidential election, the uncertainty underlying insiders’ previously hesitant comments about the impact of Donald Trump’s victory on the European Central Bank’s monetary policy stance remains, but policymakers are becoming increasingly outspoken.

Just since Friday, at least six ECB Governing Council members have already ventured guesses as to how Trump’s promised tariff hikes could impact the European economy and inflation if implemented.

Some, like Bank of Greece Governor Yannis Stournaras in a TV interview, had little choice, the format having given him little room to escape persistent questioning.

Others, like Banca d’Italia Governor Fabio Panetta or Executive Board member Piero Cipollone, willingly dove into the issue of geopolitical fragmentation, in which regard Trump poses an acute threat.

Cipollone, who has been relatively lowkey on monetary policy issues since succeeding Panetta as the Italian Executive Board member a year ago, delivered a dovish speech on Friday in which he discussed how tariffs could hit Europe.

Further trade restrictions implemented by the US ‘could significantly weigh on activity, especially in manufacturing, because of the impact on euro area confidence, exports and investment’, he said.

Imported inflation could increase due to the depreciation of the euro and tariff retaliation, he observed.

Echoing the argument used by National Bank of Belgium Governor Pierre Wunsch in a recent interview with Econostream, Cipollone went so far as to say that if Trump were to boost US oil production, prices of the commodity – already potentially weaker if reduced economic activity dampens demand – could fall further.

On Friday, Panetta dedicated an entire speech to geopolitical fragmentation.

Though devoid of mention of Trump or his plans, the speech acknowledged that ‘an escalation of trade barriers between blocs would lead to severe efficiency and welfare losses for all.’

The impact of trade barriers was also examined by Croatian National Bank Governor Boris Vujčić on Monday in a speech at the London School of Economics. Tariffs had an inflationary effect ‘directly through higher prices, but also due to lower total supply’, he said.

Bundesbank President Joachim Nagel, one of the first policymakers to publicly detail how severely a Trump win could hit Europe in a speech in early October, returned to the subject on Monday.

‘[I]nflationary pressures might rise if global integration were to reverse’, he said in remarks in Tokyo.

A ‘significant’ increase in inflation could come as a result of strong tariff hikes and the corresponding retaliation, according to Nagel.

European economic growth would also fall prey to Trump’s trade plans, and ‘even a central bank focused solely on price stability cannot completely neglect output’, he said.

ECB Vice President Luis de Guindos’ remarks on Monday resembled Nagel’s.

‘The growth outlook is clouded by uncertainty about economic policies and the geopolitical landscape, both in the euro area and globally’, he said, suggesting that a further increase in trade tensions could trigger ‘tail events’.

Stournaras, who on Monday provided a theoretical explanation of potential outcomes, was unwilling to speculate on such an uncertain issue in a more concrete way.

In a televised interview with Bloomberg, the Greek policymaker said that the effects of higher tariffs would differ depending on the time horizon.

‘The result will be what we call “stagflation” in the short term, in the medium term recession and deflation’, he said when pressed for a textbook version of how tariffs could impact Europe.

Though there is no doubt that uncertainty still surrounds Trump’s plans, it is equally clear that ECB policymakers have started dialling up their rhetoric when describing how his return to the White House could shape Europe’s economic future.