ECB’s Nagel: US Election Implications Likely to Include More Inflation Here as Well as There

22 November 2024

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Friday cautioned that the ramifications of the outcome of the elections in the US included international trade conflicts and probably higher inflation in both Europe and the US.

In a speech at the European Banking Congress, Nagel, who heads the German Bundesbank, said that he was ‘happy that the period of very high inflation is behind us’, but otherwise avoided comments of immediate relevance to ECB monetary policy.

‘[T]he results of the recent US elections could seriously challenge Europe – both politically and economically’, he said. ‘The economic implications of the change of administration in the US may go far beyond the financial sphere.’

Tariffs should be expected, given statements made during the preceding campaign, he said. These would trigger global trade conflicts and degrade the multilateral order further, he said.

‘Combined with other plans, they might inflict significant GDP losses in the United States and abroad’, he said. ‘And they would probably lead to rising inflation rates – on both sides of the Atlantic.’

Europe should act with caution and remember that a system based on rules and free trade was mutually advantageous, he said.

‘Our goal should be to enhance economic resilience without sacrificing the advantages of globalisation and free trade’, he said.

According to Nagel, the imperative of diversifying supply chains, a demographically driven labour shortage and the need to finance the digital and green transitions all meant that ‘the European model of prosperity is coming under mounting pressure.’

Europe remained far from exploiting all potential benefits of the single market and should strive to achieve its completion, he said. In this context, he called on Brussels to implement the Letta and Draghi reports ‘with determination and courage.’

It was essential to resist the tendency of member states to prioritise national interests, he said, pointing to the incompleteness of banking union.

‘Completing the banking union would mark a milestone on the path to a fully-fledged economic and monetary union’, he said. ‘And make the union more resilient in times of geopolitical fragmentation.’

That also applied to capital markets union (CMU), he continued. ‘While I know the devil is in the detail here, it is still frustrating to see how slow progress has been’, he said. ‘However, I am confident that we will finally move forward in the new EU legislative session.’

The US presidential election outcome made this all the more urgent, he said.