De Guindos warns of economic uncertainty in the eurozone due to escalating trade tensions with the US.

The impact of trade tensions between the United States and the EU, with the tariff escalation initiated by US President Donald Trump, was one of the focal points of the speech by European Central Bank Vice President Luis de Guindos. The Spaniard warns that tensions with Washington cast uncertainty over the eurozone's economic outlook , including inflation, and urges consumers to curb spending.

While he noted that data points to moderate growth in the first quarter of 2025, risks related to trade relations have increased uncertainty. "Eurozone exporters face new barriers and tensions in financial markets, and geopolitical uncertainty will impact business investment. In this scenario, consumers should be cautious about the future and restrain spending," he said in an appearance before the European Parliament.

On the other hand, the Spaniard emphasized that inflation levels have approached the 2% target set by the ECB in its monetary policy. Even so, "disruptions in global trade add uncertainty to the inflation outlook," he warned.

"The decline in energy prices, along with wage moderation and a stronger euro, could curb inflation," de Guindos considered. However, this calculation would also include the impact of lower demand for eurozone exports and a diversion of exports from other countries to the eurozone. "Conversely, a fragmentation of global supply chains could raise import prices and, consequently, inflation," the ECB Vice President pointed out.

"Global supply chains may be affected by tariffs," the Spaniard noted, which could contribute to rising inflation. The initial impact, he said, will be inflationary, but he advocated avoiding second waves of repercussions.

Trade tensions, de Guindos acknowledged, have triggered the greatest "turbulence in the financial markets since the pandemic." However, the solidity and good positioning of eurozone banks constitute a good starting point for dealing with disruptions "thanks to their considerable capital and liquidity reserves." In any case, he advocated a cautious approach and monitoring developments in the financial markets.

"Trade conflicts could pose difficulties for both households and businesses, resulting in increased credit risk for both banks and non-banks. Finally, a combination of lower growth and increased spending needs could increase pressures on public finances ," the Spaniard considered.

In this context, he advocated completing the banking union and the remaining steps toward its completion, such as the crisis management mechanism and a deposit guarantee framework extended to small and medium-sized entities.

"The recent turmoil in the financial markets also highlights the need to subject non-banks to strict regulations and to close the loopholes in the regulatory framework so that they are not treated differently than regular banks," he added.

Regarding the blackout in Spain and Portugal, De Guindos stated that the potential consequences for the European banking system will be examined. When asked whether the blackout could affect the Eurosystem— the network of central banks in the eurozone—or infrastructure such as the SWIFT bank transfer system, he said, and whether they are prepared to deal with such situations.

De Guindos considered the blackout to be " a manifestation of the disruptions that could occur in the future" given the energy interconnections between EU countries, as has been the case with Spain and Portugal.