Trump tariffs could hurt the eurozone: ECB policy is key

Europe's balance of risks would make the case for a major rate cut

- Marcus Ashworth

U.S. President Donald Trump couldn't have been clearer that the euro area is next in line for tariffs, and if he is going for maximum impact, he will aim for Germany and France. Deutsche Bank analysts estimate it could take between 0.5% and 0.9% off growth—which was only forecast to be barely above 1% in 2025 even without the Trump handicap.

This makes the approach at this week's European Central Bank (ECB) governing council meeting even more puzzling. President Christine Lagarde refuted that a swifter response to the ailing eurozone economy was even discussed, highlighting that the words "five and zero weren't mentioned"—in other words cutting by a half-point wasn't even worthy of consideration.

It's hard to know what would constitute a sufficient crisis to engender a proactive policymaker response. A more aggressive rate-cutting approach rather than baby-step quarter-point interest rate cuts is evidently needed after the eurozone economy failed to grow at all in the fourth quarter.