A full-blown trade war between the US and Europe could be the next thing to watch out for, Deutsche Bundesbank leader Jens Weidmann has warned the world, while addressing a gathering at the Council on Foreign Relations.
Weidmann has also indicated that tariff cuts will not bring any positive outcome but will only grow the fissure between the nations. At the moment, “the measures that have been adopted or brought up, post the US-Sino skirmish, could cut the output of both countries by more than a half percent over the medium term. World trade would be reduced by 1.5%,” warned Weidmann.
He has also indicated the world economy slows down as an unstoppable consequence of the way many nations are entering the political-economic war zone.
Weidmann also expressed concern about the European Central Bank’s (ECB) extra effort to stimulate its economy. This has been specifically done via purchases of bonds.
In contrast with the U.S. Federal Reserve, Weidmann suggests that the ECB must buy sovereign debt from nations with disparate local economies, fiscal policies and credit risk levels. His worry is evident and justified that the purchases suppress market signals about the health of an individual nation’s bond markets.
The official said the ECB is definitely not out of additional stimulus efforts if it deemed them necessary. But he said traveling this road would raise complicated cost-and-benefit questions.
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