GERMANY’S top central bank warned against trade levies, a day after US President Donald Trump reiterated a call for the European Union to buy more American oil and gas if the bloc wants to avoid tariffs.
“Tariffs will have losers on both sides,” Bundesbank president Joachim Nagel told an evening reception in Davos on Wednesday (Jan 22). “We have to become powerful on the ground and then we are in a much better position when it comes to the tariff discussion. But we have to prepare ourselves.”
Trump’s return to the White House comes at a difficult time for Europe’s largest economy, which shrank for a second consecutive year in 2024 and is unlikely to grow much in 2025. Sluggish demand in key industrial sectors, waning exports to China and high energy prices in the wake of Russia’s war against Ukraine hit the country hard.
The prolonged weakness in Germany is the most prominent theme for many voters, who – ahead of next month’s snap elections – worry about losing their jobs and wealth.
“We also all want to see the ‘Germany is coming back’ story,” Nagel said. “What I expect from the new government is good news, action, not just doing the analysis we all know. Now we need action. This is necessary.”
How the next administration deals with German limits on state borrowing and deficits, known as the debt brake, will be crucial. The stringent rules, long championed by conservative politicians, may be overhauled to allow for more flexibility to fund investments in things like infrastructure, energy and defence.
“The debt break worked pretty well over the last 15 years, but now we are in a world driven by tectonic changes and we need to address these tectonic changes,” said Nagel, who also also sits on the European Central Bank’s Governing Council. “What we did in the past was not enough,” he said. “We need good news from Germany.” BLOOMBERG
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