Growth alarm, ECB is considering a plan B

The hypothesis that the negotiations on tariffs will turn into a flop, and that Trump will put back on the table staggering tariffs for the European Union, is forcing the ECB to think about a 'plan B'. And it is not the 'dove' governors who are hinting at it, but the Belgian governor Pierre Wunsch: "if the recovery is delayed, and it has been several times, and economic activity is below potential, it is rational to support" growth because inflation would fall below the 2% target, says the member of the ECB council considered halfway between the 'neutrals' and the 'hawks'. The idea is circulating, under the radar, at the central bankers' meeting that the ECB holds every year in Sintra, a stone's throw from Lisbon. The ECB's official line is very clear: decisions are made 'meeting by meeting' based on the most recent data, no commitments given the sky-high uncertainty. Rates held in July, free rein in September. President Christine Lagarde reiterated this yesterday, without hiding the fact that the risks are downward. The fact is, however, that negotiations with Trump are seriously at risk of stalemate. The signs are the tycoon's belligerent statements with other countries, and the issue of European digital regulation - to protect minors, privacy, data - where the EU has limited space to accommodate Trump. Even in the absence of a real break, the climate is such as to suggest a dragging on of uncertainty well highlighted by Moody's, which has just used the axe on US growth forecasts, halving them to 1%, and filed down EU ones to 1% from 1.3%. The 'baseline scenario' outlined by the ECB in the 'staff projections' is based on the hypothesis of US duties at 10% and already indicates 0.9%. But that document does not hide the fact that "a further worsening of trade tensions in the coming months would determine levels of growth and inflation lower than those of the baseline scenario of the projections". Here, then, is the hypothesis of a plan B. A hypothesis that needs to be verified, because - as the head of the European Department of the IMF Alfred Kammer warned in Sintra - the risks for inflation are both upward and downward. There is also another issue complicating the work of the ECB. The German Commission on the minimum wage has just proposed an increase from the current 12.8 to 13.9 euros for 2026 and 14.6 in 2027. Numbers that according to a study by Goldman Sachs would impact German inflation by 0.4 percentage points. A factor to be put into the equation on 'what to do' from September onwards together with the evolution of the negotiations on duties and the euro's run: at 1.18 dollars the strong exchange rate is a burden on exports and therefore on growth, and a damper for inflation 'imported' from abroad. If things go badly with tariffs, it cannot be ruled out that rates could fall significantly into expansionary territory, compared to market expectations which for now give a terminal rate of 1.75% after a further 25 basis point cut in the autumn.