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So here's the LISUS this morning, the ECB warning tarras may be more disinflationary than inflationary for Europe. This after President Trump said he's confident of reaching a trade deal with the EU. Joining us around the table here in our studio in Washington, d C. The Chief economist of the European Central Bank, Philip Blank. Philip is good to see you, sir, Good morning, Thanks for being able to
hear in Washington. So the Government Council meeting, I imagine, was very different this time around than a number of months ago when you walked into that room and presented changes to the economy. What did you tell a team?
Sure, I mean I think it was a gear change for several reasons. So of course, our core business has been to try and get inflation back down from a high number to our targets. So I think there was a milestone in this meeting in the sense of the most recent data had come in quite low. What we'd been waiting for services inflation to kind of drop, and it has been dropped. And then we had surveys showing that basically the weight dynamic this year and in twenty
six is lower than we expected. So basically, if you like, if you clear the table about the historic issue, are we safely bringing inflation back to target? I think a lot it's not entirely settled, but a lot of it is settled. So the gear change was of course, now we have new things to talk about, and really since all the way back to last summer, trade policy uncertainty has been part of what we've had to talk about. But we still have trade policy uncertainty, but we also
have trade policy news. You know, lots has happened that the and then the other element of what we've seen is of course, and that happened, by the way, like a day or two before our March meeting, was a German break through and fiscal policy, so we already had that if you like, in the early incarnation at the March meeting. We know more now, but it's still, you know, in terms of what the other European countries are going
to do, it's something that's still in discussion. So what I would say if you put all of that together, and I think you're probably hearing this from various colleagues and other people this week, is if I take a longer term perspective, and the IMF in their publications this week, a lot of the data go out to twenty thirty.
If I take a twenty thirty perspective, you know, I think there's a lot of grants to have a renewed optimism that essentially, with more fiscal support, the credibility of delivering our two percent target on a kind of long term basis is stronger. The case for the European economy to be more resilient, to grow from a domestic source, not just from running a big export machine, is more credible. But of course we have to navigate from where we
are now. Where As you said in your intro, immediately in the short term, the way it's playing out with euro appreciation, with a big drop in energy prices, the disinflatory forces are there. But I would say maybe the question, you know, I wouldn't load it all on the trade policy. What we also see now as a portfolio shift. So there's a clear portfolio shift going on, which is I think the way you can reconcile euro appreciation in the middle of this trade discussion.
As you know, Philip, that sort of begs the question why you don't act more aggressively. Does that give you the space to act more preemptively.
Well, I think a very important narrative we had last week, and it was repeated threat to Manto policy statement was resilience. What we're seeing is the European economy growing. Two years ago it was kind of more stagnating. So we said the European economy is going to recover. We saw, you know, modest but still market recovery last year is around zero nine.
We have zero nine written down in March for this year, and that's basically because with incomes going up, consumption shough to cover with our multi policy and the general improvement of the economy, investments should recover with more government support.
So all the domestic engines are there. So what you have to think about is all of that, if you like, is saying that the economies should be growing, even marking down some trait negative and this is why we're not in a situation where we see some dramatic change in the external environment or in fries pressures and so on. So steady is okay? Hold on a second, are you saying that what we've seen with respect to US policy and the uncertainty isn't increasing the chance of recession materially
for the euroregion. Well, I mean, I think our overriding seam, of course is uncertainty. And let's not get ahead of ourselves in terms of being too sure about any any path for the ecomon But I think the message is but it's not me dreaming it up. If you look at the external watchers, if you look at the IMF, it's fairly modest mark dance on the growth trade for the European economy. The US, of course has a major trade policy issue all with the world. We have a
trade policy issue with the US. The US is an important trading partner, but it's not our only trading partner, so directionally it is a markdown. There is a markdown, but it's important to say it's a markdown from a growth trade around zero nine to a little bit less. Let's see in the coming weeks how much less. And I think if you look at the surveys this week, the surveys have elements of people being concerned, but they also have elements Right now, we're busy. Manufacturing is a
bit busier than it was. That could be a little bit of front running of taris for sure, but it's also remember the recovery narrative. Europe has been stagnating. The American economy has grown quickly, So if you like, in terms of if there is room for the American ecomomy to decelerate, and then trade policy is adding to that, what I'm saying to you is essentially the baseline for Europe was to grow a bit more quickly, and so
the resilience is there. You can take a trade hit without going to using that word which I of that you mentioned. You mentioned, of course that Europe has more trading partners.
Than the United States.
How concerned are you that if the walls keep going up in the United States, China will have to just dump somewhere. It's going to be on the continent. So I think directly an element with that must be you know, must be expected. But I think you know, China fully understands that. You know, if you listen to their policy announcements they're going to do. Their focus is on improving domestic demand. So in terms of the re orientation from the US, fairmount to domestic demand some amount to around
the world. But I think also China understands it's a large economy and a bit of restraint in exporting may make sense.
For the twenty seconds left, I just wanted to jump in. Olie Rain was busy this morning, your governing council partner, and he made the point that we should be open to larger interest rate cuts. Is that a position that you and the team agree with?
Philosophically, we don't pre commit to any rate path, of course, and so this is why again it's important, and I think the Government Council, I think, tries hard to maintain this is. You can express that in different ways, and in particular there's no reason to say we're always going to do the default twenty five. Philosophically I agree with that. Okay, what I said to you earlier on is right now
the growth performance I'm sure to be marked down. It's still a growing economy with inflation I think to the downside. But we don't need too dramatic
About Philip Lane, the Chafe economist of the e c B