Breakingviews - Global trade morass calls for an aggressive ECB

BERLIN, April 11 (Reuters Breakingviews) - Donald Trump’s erratic policy decisions give the European Central Bank a chance to stop equivocating over whether it should cut rates. The U.S. president on Wednesday delayed the full implementation of his “reciprocal” tariffs. Yet Europe will still be slapped with a 10% tax on U.S. exports, and the threat of a global slowdown remains. That calls for a strong response.

Before the tariff brouhaha, ECB President Christine Lagarde had avoided committing to cut the bank’s key rate, currently 2.5%, at its next meeting on April 17. Trump’s April 2 shocker appeared to settle the matter, with most analysts now expecting a 25 basis point decrease. Yet the trade fallout justifies a more ambitious cut twice that size.

Even before Trump’s tariffs, the ECB was expecting the euro zone economy to grow by a meagre 0.9% this year. Trump’s 10% tariff on EU exports could lower GDP growth by a third, or 0.3% percentage points, according to Nomura. This doesn’t factor in the risk of lingering uncertainty caused by Trump’s policies, which could lead investors and companies to stall decisions.

Fears of an inflation spike caused by tariffs, on the other hand, are overblown. They would only materialise if the EU were to retaliate with its own strong measures, but the European response so far has been moderate. Moreover, China, still subjected to ste...
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