Lagarde says eurozone avoided major shock thanks to smart strategy
The eurozone economy is showing unexpected resilience amid U.S. President Donald Trump’s latest wave of tariffs. European Central Bank President Christine Lagarde said Tuesday that the region avoided a deeper shock by not retaliating with its own damaging tariffs and by swiftly negotiating a trade deal with the U.S. that capped levies at 15%.
In a speech at a central banking conference in Helsinki, Lagarde acknowledged that a year ago many feared Trump’s protectionist policies would severely hit Europe. But instead of spiraling into a tit-for-tat tariff war, the European Union opted for moderation. That strategy helped maintain access to key imports and avoided inflationary supply chain disruptions.
Stable inflation and pro-growth policies support ECB stance
Lagarde noted that the eurozone’s inflation remained contained at 2% in August, while growth impacts were “relatively moderate.” She credited both the strength of the euro and active pro-growth measures by national governments. The ECB left interest rates unchanged at 2% during its last meeting in September and will meet again on October 30.
She added that the ECB’s current policy is “in a good place,” and said the bank won’t commit to any future rate direction for now. The strong euro, fueled by a weaker dollar, has also helped Europe control import prices — a critical factor amid global uncertainty.
Europe avoids retaliation to protect economy and diplomacy
The EU prepared a list of counter-tariffs but suspended them following a deal between Trump and Commission President Ursula von der Leyen in July. Business pressure and concerns over risking U.S. support for Ukraine influenced the decision. By avoiding further tariff escalation, Europe preserved supply chains and avoided bottlenecks that could spike prices.
Lagarde emphasized that indicators of supply chain stress remain near historical norms. The bloc also struck new trade agreements with Mercosur nations and Mexico, and national governments have increased public investment and defense spending in response to geopolitical threats.
Growth outlook modest despite strong positioning
Despite these stabilizing efforts, eurozone growth remains sluggish. GDP expanded just 0.1% in the second quarter. Analysts still expect Trump’s trade measures to cut about 0.7 percentage points from growth between 2025 and 2027. Even so, Europe’s measured response and diversification strategy seem to be limiting the long-term damage.
