Europe needs to “stand ready for anything” including attempts to “use tariffs as a weapon” and “blackmail” European Central Bank President Christine Lagarde said on Thursday.
Answering a question from lawmakers about the effects of U.S. President Donald Trump’s policies in unusually direct language, the central bank chief said that “the strategy of others to consolidate, weaken, strengthen, repatriate manufacturing, use tariffs as a weapon, blackmail … should reinforce our determination to be strong.”
Lagarde was addressing the European Parliament’s Economic and Monetary Affairs Committee before heading over to a meeting of EU heads of government later in the morning, where the question of how to respond to threatened U.S. tariffs on European goods will loom over discussions.
Lagarde said the ECB estimates that unilateral U.S. tariffs would hit the eurozone’s growth rate by 0.3 percentage points in the first year, and by as much as 0.5 percentage points if the EU retaliated in kind. Inflation could rise by 0.5 percentage points, she said.
Lagarde said the estimates are subject to “maximum uncertainty” due to the rapid pace of events and stressed that any barriers to trade would dampen growth. However, she added, the EU could offset that with deeper ties with other trade partners.
“Closer integration with the rest of the world, excluding the U.S., could more than offset losses from unilateral tariffs, including retaliation,” she said.
The central banker also addressed rumors of a so-called “Mar-a-Lago accord” that would aim to devalue the dollar to boost American manufacturing with the cooperation of U.S. allies.
Lagarde called the policy proposal, which has never actually been endorsed by the Trump administration in an official capacity, a “speculative unidentified arrangement” that “lacked substance.”
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