With the U.S. imposing steep tariffs on European imports, Europe’s largest economy may be on the verge of a downturn, according to Germany’s central bank.
The head of Germany’s central bank, Joachim Nagel, has warned that new U.S. trade tariffs could push the country into a recession.
Speaking to the BBC, Nagel stated that Germany’s economy, already struggling with stagnation, could shrink further if Washington fully implements its proposed tariff policies.
As reported by Digi24, Germany has already experienced two consecutive years of economic contraction due to post-pandemic challenges and the energy crisis sparked by sanctions on Russia.
Germany, the world’s third-largest exporter, relies heavily on trade with the U.S., its top export market. The auto and industrial equipment sectors are particularly vulnerable to U.S. tariffs, which could further weaken the country’s economy.
In response, the European Union has announced countermeasures, targeting $28 billion worth of American goods starting in April.
European Defense Spending and Economic Policy Shifts
These trade tensions come as the EU prepares to loosen budgetary restrictions to finance military spending.
The recently unveiled “ReArm” plan aims to allocate nearly €800 billion for defense in response to uncertainties over U.S. support for Ukraine. However, rating agency Fitch has cautioned that this plan could weaken the EU’s AAA credit rating, adding to financial instability.
Within Germany, ongoing debates over economic policy have intensified. Conservative politicians have proposed amending the country’s strict “debt brake” rule to allow increased defense and infrastructure spending.
The proposal, which includes a €500 billion investment fund, faces resistance from the Green Party and may struggle to pass without broad political support. A final vote on the fiscal reform package is expected on March 18.
Uncertain Economic Outlook
With trade conflicts escalating and political divisions growing, Germany’s economic future remains uncertain. If tariffs continue to rise and domestic reforms stall, Europe’s largest economy may find itself in a prolonged downturn, adding further pressure to the continent’s financial stability.
