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Free AccessMNI INTERVIEW2: Trump Set To Declare Car Tariffs On Europe
--Trump Likely To Declare EU Car Tariffs, DIW Berlin Chief Fratzscher Says
--Does Not Expect Tariffs To Be Implemented
By Luke Heighton
BERLIN (MNI) - U.S. President Donald Trump is likely to announce trade
tariffs on Europe in May, but will probably not implement them, German Institute
for Economic Research president Marcel Fratzscher told MNI in an interview,
warning of potentially "damaging" effects for Europe's largest economy.
Trump has threatened tariffs on European car imports if the U.S. can't
reach a trade deal with the European Union, and Fratzscher, a 10-year ECB
veteran mentioned in the German press as a potential head of the Bundesbank,
said he thought the threat would be carried out.
"Clearly if there were a permanent tariff of 25% on cars it would be quite
damaging. It is damaging already now because it creates uncertainty, which is
part of the reason for the slowdown in investment. A slowdown in China and
Italy, the trade conflict - all these pose massive risks."
But Fratzscher, who spoke to MNI at DIW Berlin's headquarters on March 18,
said: "Ultimately I don't think tariffs will be implemented, because at some
point Trump will realise that he's going to shoot himself in the foot. But maybe
that shows too much trust in his rational thinking."
While Germany, with its huge export sector, would be very exposed to U.S.
moves against cars, it also has the advantage of ample fiscal room to respond to
any downward pressure on its economy.
The low cost of 10-year Bunds means that "there is a huge negative real
interest rate. So the government could basically finance itself for free for a
long period of time," Fratzscher said, adding that generating surpluses as an
end in themselves had little economic justification.
--SAVINGS OBSESSION
"In Germany we have this obsession with saving, and the feeling is that the
higher the surplus, the better - as if it were a virtue. What makes that wrong
is that having debt is not a good thing or a bad thing in itself, it always
depends on what you spend the money on."
Public investment in areas such as education, innovation and infrastructure
could produce double-digit returns, he said. "In the long-run some public
investment generates so much additional economic activity that you more than
compensate for the extra expenditure today."
And the room for such spending may not be available forever. Factors
feeding fiscal surpluses, including record low interest rates, unusually high
corporate profits and favourable labour markets, may only be a memory in 10
years' time, Fratzscher said.
The eurozone as a whole could do with more fiscal stimulus, in support of
European Central Bank's monetary policy, he argued.
"Now is the time to have a smart fiscal stimulus. Smart means not spending
it on pensions alone, and not spending it on tax cuts for the rich."
Fratzscher was cautious on another major question of the day in Germany:
that of a possible merger between banking giants Commerzbank and Deutsche Bank.
"I am following it from the sidelines," he said, "but like most economists
I see it with a grain of doubt, whether it is really such a good idea to merge
two banks when they are both fairly weak and in need of reform. And, of course,
Commerzbank still has substantial amounts of public money in it, which also
makes one wonder whether you really want to do that."
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
[TOPICS: M$E$$$,M$G$$$,M$U$$$,M$X$$$,MC$$$$,MI$$$$,MT$$$$,MX$$$$,MGU$$$,MGX$$$]
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.