ECB warns US tariffs could stall Eurozone growth for years

The ECB has warned that US tariffs will slow down economic growth and keep prices low across the euro zone for years.

This warning came on June 16 from Luis de Guindos, Vice President of the ECB, during an interview in Frankfurt, according to Reuters.

Despite concerns that the euro’s rise and lower oil prices might drag inflation far below the 2% goal, Luis said the bank is not alarmed. “The risk of undershooting is very limited in my view,” he said. “Our assessment is that risks for inflation are balanced.”

While inflation may temporarily dip to 1.4% by Q1 2026, Luis made it clear that labor market conditions and steady wage growth, which he put at 3%, are expected to hold inflation steady in the medium term. He also said that tight labor supply and strong union demands are likely to keep pay increases healthy. That would prevent inflation from falling too far off the ECB’s target.

ECB pauses on more rate cuts as inflation dips and euro climbs

Even though the ECB had been easing policy for months, the bank has now hit pause. Luis didn’t directly say the central bank was done cutting rates, but said that financial markets got the message from Christine Lagarde, the bank’s president.

Right now, traders are betting on just one more rate cut, and possibly not until the end of the year. “Markets have understood perfectly well what the President said about being in a good position,” Luis said. “I think that markets believe and discount that we are very close to our target of sustainable 2% inflation over the medium term.”

Luis argued that the rise in the euro wasn’t a threat, even though it’s up 11% against the dollar in just three months. The currency hit $1.1632 last Thursday — the highest level in nearly four years. This hurts eurozone exporters, especially with tariffs from Washington already hammering trade.

A strong euro also lowers the price of imports, which could drag inflation lower. But Luis pushed back. He said the appreciation hasn’t been rapid or unstable. “I think that, at $1.15, the euro’s exchange rate is not going to be a big obstacle,” he said.

Euro seen as no match for dollar’s dominance in global markets

Luis shut down any hype around the euro replacing the US dollar as the top reserve currency. He said the euro zone still doesn’t have the full financial system or defense power to challenge the dollar. “The role of the US dollar as a reserve currency in the short term is not going to be challenged, in my opinion,” he said.

That comment came just days before the G7 meeting in the Canadian Rockies, where European leaders called for less trade conflict and more focus on European defense.

Antonio Costa, President of the European Union, told reporters that Europe should spend more time taking care of its own defense, rather than letting trade issues create more economic uncertainty.

“The main issue between Europe and the United States is precisely about European defence, and we should focus on this,” Antonio said. He stood next to Ursula von der Leyen, President of the European Commission, who added that trade talks with the US are still ongoing but have no clear outcome yet.

Antonio warned that creating more problems in trade right now would damage the economic base the EU is trying to protect. “That’s why this is not the right moment to create uncertainty on economics,” he said.

“We are talking about the most relevant trade relations in the world, then we need to protect this and focus on what is the most important, which is to have a good agreement between the EU and the United States about the burden sharing on defence.”

Luis also addressed questions about whether the dollar’s position might get weaker due to erratic US spending and unpredictable policies under the Trump administration. But he made it clear that the ECB still trusts the Federal Reserve. He said the Fed’s dollar backstop, recently renewed, remains reliable.

Your crypto news deserves attention - KEY Difference Wire puts you on 250+ top sites