The European Central Bank is on standby in view of the new data generated by the election of Trump in the USA. Any implementation of his stated intentions to increase tariffs would cause significant negative effects on the European economy, a prospect that has raised alarm in Brussels and Frankfurt.

ECB staff are strategizing for the day ahead with eyes on the economic policy announcements that Donald Trump will make as president after he is sworn in on January 20.

According to ERT, the ECB is determined to immediately use the weapon of the interest rate policy – to the extent, of course, that it needs to take immediate action and if such is required by the announcements that will be made on the other side of the Atlantic.

In any case, until then, interest rate cuts will continue at the pace already discounted by ECB President Christine Lagarde’s public statements.

Thus, if the positive course of inflation is confirmed, interest rates are expected to be cut by 25 basis points in December and perhaps another equal amount in January.

From there, a key parameter for decision-making at the Frankfurt staff will be, apart from inflation data, the economic policy announced by the new administration in the US.

People with knowledge of the proceedings in Frankfurt are discounting the decisiveness with which the ECB is prepared to act in the event that the US sparks a tariff war. Under certain conditions, this possibility could lead to stagflation in the global economy and in Europe. The increase in tariffs would cause a rise in inflation and a parallel decrease in exports with significant consequences for growth. The European economy, which relies heavily on exports, would immediately feel the blow in a period of weak growth.
The “hit” would be particularly painful for Germany, where exports are the driving force of its economy and it is already facing the risk of recession for the second year in a row this year.

If this unfavorable scenario is confirmed, as well-informed European sources convey, the ECB will act by cutting its interest rates faster, regardless of the policy followed by the FED, in order to give large breaths of cheap money to the European economy to cope with the pressures . The ECB has the arsenal required for such extreme conditions. After all, it has proven it in the past when it had to manage the Greek crisis and also during the pandemic.

Intense processes are also taking place in Brussels, at the level of European governments after the result of the American elections. How to deal with the possibility of US tariffs on European goods is one of the main issues in the consultations between the leaders of the member states.

Reports suggest that the EU will not hesitate to respond by raising tariffs on US goods if the US raises its own tariffs.