By FRANKFURT (Reuters) – Europe and the U.S. will both take a growth hit if there is a new trade war and inflation could also rise, increasing pressure on EU leaders to kick start long-delayed economic integration to insulate the bloc, Bundesbank President Joachim Nagel said on Friday.
Nagel joins a long list of policymakers arguing that tariffs proposed by U.S. President-elect Donald Trump are likely to hurt all parties involved, a message that has yet to resonate with the incoming U.S. administration.
“Implementing such tariffs would re-ignite international trade conflicts and further impair our multilateral order,” Nagel said in a speech in Frankfurt.
“Combined with other plans, they might inflict significant GDP losses in the United States and abroad,” Nagel said. “And they would probably lead to rising inflation rates – on both sides of the Atlantic.”
Europe must now come together and subordinate national interests to the common cause, creating an economic framework that protects the European model of prosperity, Nagel argued.
Necessary steps include a true banking union with a joint deposit guarantee scheme and a solution to the “doom loop”, created by the links between sovereigns and banks, Nagel said.
Another necessary step is setting up a true capital markets union, which would channel European savings to firms and regions in the biggest need of capital, Nagel added.