You should be underestimated by the impact of the international war of the dictatorial onto the EUbecause for the time being it has fallen into the “soft” compared to the most “pessimistic” scenarios that economic analysts had formed.
Specifically, the President of the European Central Bank, Christine Lagarde, during the 4th International Monetary Policy Conference of the Central Bank of Finland (September 30, 2025), highlighted two critical points on the EU duties, which went relatively unnoticed by the media.
First, achieving the goal of 5% of GDP defense expenditure by NATO Member States is not enough to offset the losses caused by US duties. Secondly, many companies continue to reduce their stocks and absorb the effects on their profit margins, which means that the complete negative consequences of duties have not yet become apparent.
1. NATO’s 5% objective is not sufficient as a ran in the duties
The ECB had initially appreciated the risks of growth as a downward, based on extensive scripting analysis of possible scaling and compensatory forces, such as increasing costs for defense and infrastructure.
However, the results of the analysis show that the most important risks remain down: The serious escalation of commercial tensions It can cumulatively reduce growth by about one percentage unit on the view horizon. Even the complete fulfillment of the NATO Member States’ commitments would not be enough to offset this effect.
2. Fears of growth when company stocks are finished
The European Union continues to be in an environment of ge-economic and geopolitical shocks, with US duties being an important source of uncertainty. As the President of the European Central Bank, Christine Lagarde, pointed out, the “known – unknown” factors remain a constant feature of the international environment. Businesses continue to reduce their stocks and absorb the impact on profit marginswhich means that the complete consequences of US duties have not yet become clear.
The way in which these factors will evolve has a direct impact on monetary policy, not only through impact on development, but also to potential development. If businesses consider the new environment as a constant shock of trust, There is the risk of shift in investment outside the euro zonereducing potential development. The lowest potential growth would have a downward pressure on actual interest rates and limit the ECB’s available policy space.
Priority in the Internal Market: The counterweight to US duties
However, other ways are possible if governments are decisively acting and giving companies new reasons to be sure. A factor often omitted in the debate on duties is that Internal market is much more important for trade than world market. ECB analysis shows that an increase of just 2% in the intra -European trade would be enough to offset the loss of exports to the United States caused by the highest duties.
This is a persuasive reason for the implementation of reforms identified in recent reports by Mario Draghi and Enrico Letta, in particular the simplification of burdensome regulation, completing the single market and building a real European capital market. The same reforms would also help European companies adopt artificial intelligence faster. This would result in a positive sign for potential development, helping to balance the negative forces coming from abroad.
In conclusion, The future of the European economy is not predetermined and there is no room for complacency. The ECB must remain flexible and ready to respond to the data as they evolve, without predetermined interest rates commitments. The balance between negative external forces and internal political actions will determine the course of growth and the stability of the euro area.