A Trump victory could pose a risk to European markets the ECB have warned, hurting investor sentiment and triggering higher borrowing costs for Eurozone governments. The political uncertainty that surrounds a Trump victory has tarnished economic sentiment in an already uncertain period for the Eurozone, which faces Brexit and a number of European elections next year. Trump’s protectionist approach looks to bring US business back to home soil, imposing trade tariffs on imports into the country.
Furthermore, many European officials such as Jean Claude Juncker – President of the European commission has warned that the US risk damaging EU-US ties unless Trump moves away from his campaign rhetoric and takes an interest in European politics.
Juncker has predicted that two years would be wasted whilst Trump “tours a world he doesn’t know”.
US-EU trade deal out of the question
The controversial TTIP (Transatlantic Trade and Investment Partnership) has been thrown into doubt since the President-elect assumed victory, who took the opportunity during his first public address on policy to withdraw any such agreement on his first day in office. “On trade, I am going to issue a notification of intent to withdraw from the Trans-Pacific Partnership — a potential disaster for our country.” he said.
“Instead we will negotiate fair bilateral trade deals that bring jobs and industry back on to American shores”.
Elsewhere in Europe, pressure is building on Matteo Renzi and the upcoming Italian Referendum on 4th December. It has been suggested that if Italy vote against bank reforms, Renzi would resign and up to 8 banks could fall. Furthermore, Italy’s anti-establishment approach is building momentum which some have suggested could open the door to far-right political parties.
The ECB’s vice president is concerned that Italy would bare the brunt of rising borrowing costs, but has stated the “Italian banks are more resilient since the financial crisis”.
Mr Constâncio went on to say that “We are in a new phase of weaker world trade”, and with the protectionist approach likely to extend beyond Brexit and Trump, global trade could slow significantly.
But how much of this can be taken at face value given Trump’s clear u-turn on his campaign promises? In any event the Euro could be set for further losses against the US Dollar with the ECB likely to extend their QE programme beyond March 2017. Trump’s victory is one of many challenges the EU faces next year, with Brexit and Marine Le Pen other likely headaches.