ECB Sees Lessons for Europe as Trump Win Adds to Economic Risks

  • Coeure says Europe needs strong economy to control its destiny
  • Weidmann says ‘pronounced political uncertainty’ hurts growth

Will Brexit and Trump Heighten Uncertainty Across Europe?

European Central Bank Executive Board member Benoit Coeure warned European leaders to learn from the U.S. presidential election, as his colleagues suggested Donald Trump’s surprise victory might burden the global economy by adding to policy uncertainty.

“It holds a lesson for Europe: in a world where shocks are increasing, Europe must keep control of its destiny,” Coeure said in an interview with France’s Le Progres de Lyon and EBRA newspaper group published Friday. “For Europe to be strong in terms of defense and security, it must have a strong economy. And for the economy to be strong, reforms are needed in every country and the euro area must function better.”

Benoit Coeure

Photographer: Vladimir Simicek/AFP via Getty Images

Global trade is facing extraordinary headwinds with Trump pledging throughout his campaign to dismantle or renegotiate deals, the U.K. set to exit the European single market, and Europe’s biggest economies striving to combat rising populism ahead of national votes. Those are downside risks for the euro area as it struggles to turn its gradual and cyclical recovery, fueled by monetary stimulus, into a structural one.

“Not only the sentiment and currents behind the Brexit vote, but most recently also the result of the U.S. presidential election, raise the question of how much protectionism and isolationism will determine the future political agenda,” ECB Governing Council member Jens Weidmann said in Berlin on Thursday. “Pronounced political uncertainty” is weighing on growth prospects, he said.

Volatility Watch

ECB Vice President Vitor Constancio said in Stockholm on Thursday that the world economy faces “an abnormal degree of uncertainty,” and that Europe “will have to deepen its unity and its integration and also needs more economic growth.”

Coeure said it’s too early to judge whether Trump’s victory will affect the ECB’s next policy decision, scheduled for Dec. 8, but that the Frankfurt-based central bank intends to keep its monetary stance “very accommodative” until euro-area inflation is firmly on track toward its goal. Policy makers are reviewing their 1.7 trillion-euro ($1.8 trillion) asset-purchase program, with most economists predicting it will be extended beyond the current end-date of March.

“In the short term, we are closely monitoring the reaction of the financial markets,” Coeure said. “Excessive volatility must be avoided. Looking ahead, we will assess the consequences of Mr. Trump’s election for the global economy and for the euro area.”

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