Trump's Tariffs! Will They Make or Break the Eurozone?!

Shaken Not Stirred: The Economic Climate

Right pay attention 00 nation. The name's Bond James Bond. And it seems we have another global kerfuffle brewing this time courtesy of one Donald Trump and his penchant for tariffs. A bit like Goldfinger's Midas touch except instead of gold it's economic chaos he seems to be turning things into. Pierre Wunsch bless his Belgian heart is worried about the European Central Bank's interest rates. "We were going in the right direction," he said. Charming but hardly reassuring when the world's largest economy is throwing wrenches into the works. Frankly it all feels a bit like trying to defuse a bomb with a cocktail shaker in hand.

A Licence to Inflate?

Wunsch who juggles his time between the ECB and running the National Bank of Belgium suggests these tariffs will be "bad for growth" and "probably" inflationary. "Probably"?! Sounds like he's hedging his bets more than a seasoned poker player at Casino Royale. He admits the impact is uncertain depending on retaliation and exchange rates. It's all very vague isn't it? Like trying to predict Blofeld's next move. Trump's threatened to slap tariffs on all cars “not made in the United States,” and larger tariffs on the EU and Canada if they resist. A bit of a Dr. No approach to international trade wouldn't you say?

April Showers Bring Tariff Flowers?

April 2nd is looming a date that could see these tariffs come into effect. Of course Trump's track record suggests these could be postponed amended or abolished as easily as a villain's life. The ECB's next interest rate decision on April 17th could be… interesting. Markets are pricing in a cut but Wunsch isn't putting too much stock in it saying the impact is medium term. More like he doesn't want to commit until he sees which way the wind is blowing the clever man.

Pause Rewind Hike?

Wunsch is keeping all options on the table: cuts hikes or a pause. He finds a hike unlikely but says a pause should be discussed if tariffs cause inflation and hurt growth. It's a bit like juggling grenades isn't it? Each decision could blow up in your face. He also added a nice dose of realism by saying "I think the likelihood is still limited that we would have to hike but there might be a case for a pause," he said. At least someone is making sense!

The Fiscal U Turn of Destiny

However it isn't all doom and gloom. Apparently fiscal policy in Europe might offset some of the tariff pain. Germany's loosened its purse strings for defense spending and the EU's contemplating a massive defense expenditure package. It seems they're preparing for an economic cold war which is always fun. According to Wunsch Germany's measures “could… compensate for the tariffs.” So maybe it's not all Quantum of Solace after all.

A View to a Kill... Inflation?

If the tariffs and fiscal expansion balance out the biggest risk becomes inflation. "The risk might be on the upside on the inflation front," says Wunsch. A reason to consider a longer term view. I suppose the takeaway here is to stay sharp keep your enemies close and your martini extra dry. The world of international finance is becoming increasingly dangerous even for a seasoned spy like myself. So stay tuned folks. This is only getting started.