Higher trade tariffs might just be what the euro zone needs to check how its economy is actually performing after several years of promising growth, a high-ranked European official said.
The 19-member region that shares the single currency has been growing at a gradual pace over the last two years following a sharp downturn due to the sovereign debt crisis of 2011. But the current threat of higher tariffs with key trade partners, especially the US, could prove a challenge for the euro area’s fragile recovery.
“This is a major risk that we see for the global economy and certainly for the relationship between the US and Europe,” Mario Centeno, who heads the group of 19 finance ministers for the euro area, said Wednesday, speaking on increased duties coming from the US
The region grew at a rate of 2.4 percent in 2017 — an expansion not seen in about a decade. However, the economic momentum has cooled down in the start of 2018 — something that higher trade barriers could dampen further.
“We don’t know exactly how it will evolve, but I agree with those that see this process as a necessary test to the economic recovery, and actually to the (economic) expansion that our economies were experiencing,” Centeno said.
He added that right now it is important to work toward a limit to the tariffs both in scope and duration.
The European Union is currently studying ways to prevent an escalation in trade tensions with the White House. Media reports earlier this week suggested the EU could propose a deal to the world’s biggest car exporters and thus prevent wider ramifications in case President Donald Trump moves ahead with a 25 percent tax on European carmarkers.
The International Monetary Fund (IMF) also warned in June that higher trade tariffs are the biggest single risk to the euro zone economy. IMF Managing Director Christine Lagarde said that the problem now is not the direct economic impact of higher duties, but “the breach in confidence that undermines the relationship” between both the US and Europe.
Lagarde also warned that if the trade tensions escalate further, then the direct impact on the economy will become more substantial.