Trump trade war would be catastrophic for EU, officials warn

Germany and France’s central bankers say US election result is a ‘wake-up call’ on defence spending

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Donald Trump’s US election victory is a “wake-up call” for Europe to slash red tape and boost defence spending, three of the bloc’s top officials have warned.
Germany and France’s central bank governors said a trade war that triggered the collapse of the Franco-German axis would be catastrophic for the single currency bloc.
“We have to deal with geopolitical crises and tensions. The outcome of the US election may well add to such tensions and should be taken as a wake-up call,” said Joachim Nagel, president of the Deutsche Bundesbank, and François Villeroy de Galhau, governor of the Banque de France.
“Against this backdrop, France and Germany should stand strong together. To divide us would be to condemn us, and to condemn Europe,” the pair wrote in an op-ed published by Frankfurter Allgemeine Zeitung and Le Monde.
It came as Christine Lagarde launched a blistering attack against the “vested interests” that she said had left the EU facing “death by a thousand cuts”.
The president of the European Central Bank (ECB) warned that successive attempts to streamline the myriad rules and regulations within the EU had repeatedly been blocked.
That in turn allows the project to suffer “death by a thousand cuts” as vested interests oppose or dilute each piece of legislation, she said in a speech at the European Banking Congress.
Ms Lagarde has previously described Mr Trump, who re-enters the White House in January, as a threat to Europe because of his proposals to implement blanket tariffs and scrap net zero measures.
Mr Trump has also lambasted Europe for its failure to spend more on defence.
Europeans were already poorer than their American counterparts following decades of cautious investment choices and fragmented markets, Ms Lagarde warned.
“European households are much less wealthy than they could be. Since 2009, US household wealth has grown by around three times more than that of EU households,” she said.
Ms Lagarde warned the technology gap between the US and EU was now “unmistakable” as she called a simplification of investment rules as “the missing link for Europeans to turn their high savings into greater wealth”.
Ms Lagarde added: “The geopolitical environment has also become less favourable, with growing threats to free trade from all corners of the world. As the most open of the major economies, the EU is more exposed to these trends than others.”
France is facing deep spending cuts to try to tame mounting debts while Germany is also struggling with a prolonged period of stagnation, with the collapse of Chancellor Olaf Scholz’s coalition government triggering snap elections next year.
The ECB issued a stark warning over the bloc’s “sluggish” growth this week that it warned had pushed the single currency area to the brink of another debt crisis.
The central bank said investors were becoming increasingly concerned about government borrowing, with surging debt levels and budget deficits more likely to “reignite debt sustainability concerns”.
Singling out France, the eurozone’s second largest economy, it added that a collapse of trust in politicians over the past three decades had made it more difficult to deal with economic shocks.
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