Removing trade barriers within Europe: Hernández de Cos's recipe

BarcelonaA new call for European integration, this time from the former governor of the Bank of Spain and future director of the Bank for International Settlements, Pablo Hernández de Cos, has called for the elimination of trade barriers within Europe as a measure to survive the tariff policies of US President Donald Trump. He said this at the Annual Meeting of the Círculo de Economía (Economics Circle), where he asserted that "in a context of potential deglobalization, this entails a loss of productivity, and the way to compensate for this is with greater European integration."

In a roundtable discussion with the managing director of Bank of America, Francisco Blanch, Hernández de Cos asserted that despite its commitment to trade within its borders, the European Union "cannot and should not renounce" multilateralism and commercial globalization, and insisted that the European Union must become "one." "A safe European jointly financed asset could help the euro become a reserve asset, with all the benefits this entails for the economy," he said. Thus, in line with what the Cercle speakers have been advocating since the last meeting, De Cos emphasized the need to move forward with the creation of a complete banking union and a capital union.

For his part, Blanch pointed out that the main difference between the growth of the European and American economies over the last 20 years is capital and productivity, which has been driven primarily by the massive debt incurred by the US; a growth that has also created weaknesses, such as "greater inequality and greater political polarization." He also explained that Europe must "reorganize its own military structure" and lamented the lack of energy autonomy, with high prices and price volatility, which he believes can only be remedied by investing in energy storage. "We need a much more pragmatic and much less dogmatic policy," he asserted.

Uncertainties and opportunities

The current global situation has created great uncertainty in every sense, but especially in economic terms. According to De Cos, this situation makes it impossible to assign percentages of possibilities to the future scenarios that economists work with, and he urged companies to increase their resilience to face it. Blanch exemplified this by saying that, in twelve months, the exchange rate between the euro and the dollar could be at $1.30 per euro or $1 per euro depending on the policies that Donald Trump ultimately implements, and the same is true for US interest rates.

"When you put all the supply and demand shocks the Trump administration is generating into the mix, it's very difficult to know where the economy will go, but generally the result will be higher inflation, which will ultimately lead to higher interest rates," the former governor noted. Asked whether the euro could become a reserve currency, De Cos responded that it's difficult to say, but for that to happen, "we must create a common asset and greater European integration."

According to the managing director of Bank of America, "the strength of the dollar has also created very strong inequality with the rest of the population and with Europe." "This version of Trump 2.0 is more ideological and focused on the fact that public debt is very high and must be reduced: this implies increasing revenue (tariffs), reducing spending, or lowering inflation," he explained. However, Blanch concluded on an optimistic note: "It's a different economic policy, but one that opens up great opportunities for Europe."