The European Central Bank Vice President, Luis de Guindos, recently discussed the impact of tariffs on the euro zone’s economic growth and prices in an interview with Reuters. Despite concerns about inflation dipping below the 2% target due to the strong euro and low oil prices, de Guindos expressed confidence that the risks for inflation are balanced.
De Guindos highlighted that the tight labor market and demands for higher wages from unions would help inflation rebound to target levels. He also mentioned that financial investors correctly interpreted ECB President Christine Lagarde’s message, indicating a possible pause in policy easing.
The euro’s recent surge against the dollar, rising by 11% in the past three months, has raised concerns for exporters and imported prices. However, de Guindos noted that the exchange rate has not been volatile, and its appreciation has not been rapid, minimizing the obstacles posed by a stronger euro.
De Guindos dismissed speculations about the euro challenging the dollar’s status as the world’s dominant currency. He emphasized that the euro zone lacks the necessary financial architecture and defense capabilities to become a real challenger, limiting its gains. The euro’s share of global foreign exchange reserves has remained around 20%, with smaller currencies benefiting instead.
Despite concerns about the dollar’s status due to excessive government spending and erratic policies in the U.S., de Guindos expressed confidence in the reliability of the U.S. Federal Reserve. He mentioned that the ECB believes the Fed’s dollar backstop would remain in place, and there are no plans to move gold reserves from the New York Fed amid political turmoil.
In conclusion, de Guindos reiterated that the euro is unlikely to challenge the dollar as a reserve currency in the short term. The ECB remains focused on maintaining stability and balancing inflation risks in the euro zone.
(Editing by Hugh Lawson)
