HELSINKI — The EU should prioritize politics over economics and retaliate against Donald Trump, one of the European Central Bank’s top policymakers said.
In an interview with POLITICO, Bank of Finland Governor Olli Rehn urged the European Union to prepare “proportionate countermeasures” to the United States president’s imposition of tariffs on imports from the bloc.
“There is an economic and a political logic,” Rehn, a former European economy commissioner, said. “Many economists advocate non-retaliation, because [retaliatory] tariffs would harm oneself. But … it’s not only about economics, it’s also about politics, and politics does affect the economy.”
Rehn’s comments, like those of ECB President Christine Lagarde on Monday, suggest some confidence that the eurozone economy can withstand a trade war with its biggest trading partner.
The ECB estimates that the first wave of U.S. tariffs could take 0.3 percentage points off gross domestic product over the next year — and 0.5 percent if the EU retaliates in kind.
Central bankers past and present have been split over how best to respond to a political shift that goes against the liberal economics they usually stand for.
Rehn’s comments position him closer former Bank of England Governor Mark Carney than to his former boss at the ECB, Mario Draghi.
Since taking over as Canadian prime minister on March 14, Carney has continued his predecessor Justin Trudeau’s policy of “dollar-for-dollar” retaliatory tariffs, while Draghi has argued Europe may be better off holding back, given that it is more dependent on external trade than is the U.S.
With characteristic understatement, Rehn noted that “quite a lot has happened” since the ECB’s Governing Council last met on March 6. U.S. policy has hurt the growth outlook but European policy — especially Germany’s far-reaching plans to raise spending on defense and infrastructure — should boost it.
“If you look at the impact of these two factors, they may create both upside and downside risks to inflation,” Rehn said.
Away from tariffs, the Brussels veteran has enthusiastically embraced the European Commission’s efforts to mobilize more funds for European defense, in the face of what he called an “existential threat” from Russia.
He supported a Commission proposal to borrow €150 billion to lend to EU governments under a rearmament plan. This would amount to repackaging bonds from different countries in the form of a European “safe asset,” structured in a way to limit overall risk.
“We need to find a combination of national and European solutions,” Rehn said. He applauded as “extremely important” the recent announcement by Germany — one country that does have room for more public debt — that it was lifting its national borrowing restrictions and paving the way for increased defense spending.
And while he stopped short of advocating the outright seizure of the €200 billion in Russian reserves frozen in European depositaries, he urged that the funds be put to “meaningful” use.
So far, they are only being used as collateral for €50 billion in loans from G7 countries to Ukraine.
“I am aware of the legal challenges,” Rehn said, “but this has been discussed in the G7 context and if there is a will, there is a way.”
ECB’s Rehn on Trump tariffs: Europe must give as good as it gets
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