Eurozone News
LAST UPDATE: June 7, 2025
Germany faces two more years of recession if US trade war escalates: central bank
Germany’s central bank warns that an escalation in the US-EU trade war could lead to two additional years of recession, with GDP projected to decline by 0.5% in 2025 and 0.2% in 2026.
Insight
The Bundesbank’s forecast underscores the vulnerability of Germany’s export-driven economy to external shocks, particularly from major trading partners like the US. The automotive sector, a cornerstone of German industry, is especially at risk due to potential tariffs. Prolonged recession could exacerbate structural issues, including high energy costs and competition from emerging markets. Policymakers may need to consider strategic investments and diversification to mitigate these risks.
Germany’s Merz eyes car tariff offsetting mechanism after Trump talks
Chancellor Friedrich Merz proposes a reciprocal car tariff agreement with the US, allowing duty-free imports of US cars into Europe in exchange for equivalent tariff waivers on European vehicles exported to the US.
Insight
This initiative aims to alleviate trade tensions and protect the German automotive industry from punitive tariffs. By engaging directly with US counterparts, Germany seeks to find a balanced solution that satisfies both parties. The proposal also reflects a strategic move to maintain competitiveness in the global automotive market. Successful implementation could set a precedent for resolving similar trade disputes in other sectors.
Merz Pledges New Bid With France to End Capital-Markets Impasse
Chancellor Merz and President Macron announce a renewed effort to advance the EU’s Capital Markets Union, aiming to deepen financial integration and enhance investment flows across member states.
Insight
The initiative addresses longstanding barriers to a unified European capital market, which could bolster economic resilience and reduce dependency on external financing. Enhanced capital mobility may facilitate funding for innovation and infrastructure projects, driving growth. However, achieving consensus among diverse member states remains a significant challenge. Success in this endeavor could strengthen the EU’s position in the global financial landscape.
Bank of Portugal slashes 2025 growth forecast amid trade tensions
The Bank of Portugal cuts its 2025 economic growth forecast from 2.3% to 1.6%, citing a 0.5% contraction in Q1 due to declining exports and rising imports amid global trade tensions.
Insight
Portugal’s revised forecast highlights the country’s exposure to international trade dynamics. The unexpected contraction suggests that external factors, such as tariffs and supply chain disruptions, are significantly impacting economic performance. Policymakers may need to implement measures to stimulate domestic demand and diversify export markets. Structural reforms could also enhance competitiveness and reduce vulnerability to global shocks.
IMF tells Lithuania to seek more sustainable sources of budgetary revenue
The IMF advises Lithuania to implement structural reforms and identify sustainable revenue sources to support increased defense spending and address demographic challenges.
Insight
Lithuania’s economic resilience is commendable, but rising expenditures necessitate a reevaluation of fiscal strategies. The IMF’s recommendations focus on enhancing productivity and ensuring long-term fiscal stability. Diversifying revenue streams and improving public sector efficiency are critical steps. Addressing demographic issues, such as an aging population, will also be essential for maintaining economic growth and social welfare systems.
Dutch Central Bank Warns Government Collapse Will Hit Economy
The Dutch central bank warned that the recent collapse of the government could negatively impact the economy, projecting a growth rate of 1.1% this year, with uncertainty and trade tensions muting growth to around 1% annually in the coming years.
Insight
The central bank’s projection underscores the potential economic instability resulting from political uncertainty. The collapse of the government, triggered by the far-right Freedom Party’s exit from the coalition over migration policy disagreements, may delay critical policy decisions and reforms. This political turmoil could erode investor confidence and hinder economic growth. The central bank’s warning serves as a cautionary note on the importance of political stability for economic performance.
Netherlands to Vote on October 29 After Government Falls
Following the collapse of the Dutch government, the Netherlands has scheduled a general election for October 29, 2025.
Insight
The early election was necessitated by the government’s collapse after the far-right Freedom Party withdrew from the ruling coalition due to disagreements over asylum policy. The upcoming election introduces a period of political uncertainty, as forming a new coalition government in the Netherlands often takes months. This prolonged uncertainty could impact economic policy-making and investor confidence. The election outcome will be pivotal in determining the country’s future policy direction, particularly on contentious issues like immigration.
El FMI calcula que un arancel del 10% de Trump solo resta una décima al crecimiento español
The IMF estimates that a 10% tariff imposed by the US would reduce Spain’s GDP by only 0.1%, making it the least affected among major EU economies due to its low trade exposure to the US.
Insight
Spain’s limited vulnerability to US tariffs reflects its diversified trade portfolio and minimal reliance on exports to the US market. The IMF’s recommendation for Spain to accelerate fiscal consolidation, including VAT adjustments and pension reforms, underscores the need for structural changes to ensure long-term economic stability. Despite political fragmentation, Spain’s projected 2.5% growth for 2025 indicates resilience, but proactive measures are essential to mitigate potential external shocks and maintain fiscal health.
