When Europe’s most influential technocrats convened at a secluded mountain resort near Lisbon this week, the expectation was that the French election would dominate discussions. However, the focus shifted to the United States, where political uncertainty has been escalating following President Joe Biden’s lackluster debate performance against Donald Trump.
Key Takeaways
- European central bankers are more concerned about the U.S. election than the French election.
- A Trump victory could lead to significant global economic fragmentation.
- European policymakers are worried about the potential impact on trade and economic policies.
European Concerns Shift to the U.S.
At the annual ECB Forum on Central Banking in Sintra, Portugal, top central bankers from four continents gathered to discuss pressing economic issues. Surprisingly, the French election, which could see the far-right National Rally gain control of parliament, was not the main topic of concern. Instead, the focus was on the U.S. election and its potential global ramifications.
One participant noted, “I think everybody in Europe is watching the U.S. elections. Concern about France would be related to the high cost of borrowing, whereas concern about Donald Trump is concern about the fragmentation of the global economy.”
French Election: A Secondary Concern
Despite the potential for political upheaval in France, European policymakers seemed relatively unconcerned. Some officials even admitted they were not closely following the situation. One ECB Governing Council member dismissed the threat, suggesting that the leadership of Marine Le Pen’s National Rally would be moderated by power, similar to Italian PM Giorgia Meloni.
“If something disorderly happens, we would do as necessary, but currently, it doesn’t look to be of extreme and major concern,” another Governing Council member stated.
U.S. Election: The Main Focus
The primary concern among the attendees was the U.S. election. A Trump victory could lead to the U.S. abandoning Ukraine, leaving Europe to bear the cost of defending the would-be EU member in its ongoing war against Russia. Additionally, Trump’s proposed economic policies, including a blanket tariff on imported goods, could significantly impact Europe’s economic growth.
Goldman Sachs chief economist Jan Hatzius warned that Trump’s proposed tariffs could depress Europe’s economic growth by as much as 1%, compared to 0.5% in the U.S. “The key is trade policy uncertainty. We consistently find that the euro area is more susceptible than the U.S.,” Hatzius said.
Broader Economic Concerns
The U.S. election is just one of many variables that could further destabilize the global economy. Attendees expressed concerns about a potential international trade war involving Europe, the U.S., and China. Europe is more dependent on Chinese exports than the U.S. and has already suffered economic damage from the ongoing trade disputes.
One participant summarized the sentiment, saying, “People are broadly concerned that the world as we know it is going away. At the same time, what cannot last forever cannot last forever.”
The risk of a trade war, coupled with the uncertainty surrounding the U.S. election, has left European policymakers on edge. The potential for a Trump administration to withdraw from Europe and focus on its own economic health could expose Europe to significant economic risks.
In conclusion, while the French election remains a topic of interest, it is the U.S. political landscape that has European central bankers most concerned. The potential for global economic fragmentation and trade policy uncertainty looms large, making the outcome of the U.S. election a critical factor for the global economy.
