U.S. President Donald Trump’s tariff policy has created an opportunity for the euro to leap forward as a global currency, but the European Central Bank (ECB) faces complex calculations regarding interest rate cuts. Amid this, the disinflationary trend that began in France is spreading throughout the eurozone, sparking expectations for an ECB rate cut. However, there are differing opinions within the ECB regarding the interest rate cut, which draws attention.
According to the Wall Street Journal (WSJ) on the 27th (local time), France’s consumer price inflation rate in May increased by 0.6% year-on-year, falling short of market expectations (0.9%). This is thanks to stable service and energy prices. François Villeroy de Galhau, Governor of the Central Bank of France, described it as “an encouraging sign that disinflation is underway.”
The market is weighing the possibility that the ECB will lower the benchmark interest rate by 0.25 percentage points to 2.0% at its meeting on June 5. This is interpreted as a response to the current situation, which is below the medium-term inflation target (2%). The ECB has already cut rates seven times since June of last year.
Christine Lagarde, President of the ECB, believes that this environment presents a strategic opportunity for the euro. She emphasized on the 26th that the euro could leap forward as an international currency capable of responding to the instability of the U.S. dollar. Lagarde stated, “The euro must gain influence on its own,” highlighting the completion of the European single market, joint fiscal management, and a strong security system. She also mentioned the importance of military strength for securing investor confidence.
To strengthen the euro’s status as an international currency, not only short-term economic stimulus but also structural reforms, policy stability, and expansion of legal and institutional foundations are seen as essential tasks. Lagarde emphasized that if the international status of the euro rises, countries in the eurozone could finance at lower expenses, receive increased foreign investments, and become more resilient to exchange rate instability.
Internal opinions regarding the ECB’s interest rate cut are clearly divided. Supporting the cut are not only President Lagarde but also Pierre Wunsch, the Governor of the Central Bank of Belgium. Wunsch believes that given the weak demand and low inflation in the eurozone, there is sufficient room for additional interest rate cuts, even amid trade conflicts. He indicated that considering the current low inflation, the benchmark interest rate could be lowered to slightly below 2% within this year.
In contrast, Robert Holzmann, the Governor of the Central Bank of Austria and a notable hawk, expressed opposition to early cuts in an interview with the Financial Times (FT) on the 27th, stating, “Now is the time to conserve rates.” He warned that additional cuts could have no tangible effect on the eurozone economy and could instead pose greater risks. He also mentioned that significant external uncertainties, such as trade conflicts, are key variables.
U.S. President Donald Trump warned that starting next month on the 1st, he would impose tariffs of up to 50% on European Union (EU) imports. However, following negotiations, these tariffs have been suspended until July 9. ECB officials opposing the rate cut believe that if rates are lowered too early, they may lack tools to respond later. Isabel Schnabel, an Executive Board member of the ECB, also expressed concern, stating, “Trade conflicts could stimulate prices again.”