ECB cuts interest rates to 2% as inflation cools – DW – 06/05/2025
The European Central Bank has cut the cost of borrowing for the eighth time in the past year. Fiscal policymakers have been seeking to prop up a eurozone economy that was floundering even before US tariff announcements.
The European Central Bank's rate-setting council on Thursday cut the institution's benchmark rate a quarter-point to 2% as it seeks to stimulate the eurozone's struggling economy.
The reduction comes after US President Donald Trump's most recent threat to raise tariffs on goods from the European Union to 50% after expressing dissatisfaction with the progress of trade talks.
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Local Germany
6 hours ago
- Local Germany
Germany faces two more years of recession if US trade war escalates: central bank
If US President Donald Trump's tariffs were implemented in full from July and the EU retaliated, then German output would decline 0.5 percent this year and 0.2 percent in 2026, the Bundesbank forecast. This would be due to a "marked decline in exports and significant uncertainty weighing on investment", it said. There would be a return to growth in 2027, with a rebound of one percent, it said. The eurozone's traditional growth engine has already contracted for the past two years due to a manufacturing slump and surging energy prices after Russia invaded Ukraine, but hopes had been high for a modest recovery from this year. When Trump unveiled his "Liberation Day" tariffs in early April, he threatened to hit the European Union with a 20-percent levy over its hefty surplus in goods traded with the United States. He then paused those higher rates until July to allow for talks to try to reach a deal. More recently he said he would slap the EU with a 50-percent tariff rate as negotiations stalled -- but has also delayed that measure. The bloc still faces a "baseline" 10-percent tariff rate on all its exports to the United States, as well as higher levies on some specific sectors. Advertisement Risk to German exports Trump's tariff blitz stands to hit export power Germany hard, as the United States was Germany's top trading partner in 2024, receiving huge quantities of its cars, pharmaceuticals and machinery. Germany's federal employment agency predicted that, in the event that 25-percent tariffs were imposed, it would cost the country about 90,000 jobs in a year, the Sueddeutsche Zeitung daily reported. "The erratic trade policy of the United States is putting pressure on the German labour market," agency chief Andrea Nahles told the newspaper. "The problem is this lack of predictability, which is causing us massive damage. It is preventing companies from investing, hiring and training people." Advertisement As well as a worst-case scenario, the Bundesbank also released "baseline" growth projections. This envisages US trade policy having a more moderate impact on Germany as new Chancellor Friedrich Merz's planned spending surge on infrastructure and defence helps support the economy. Under these forecasts, the economy would stagnate this year before expanding 0.7 percent in 2026 and then 1.2 percent in 2027. The German government and many economic institutes have already slashed their growth forecasts for this year to zero, citing the uncertainty triggered by Trump's trade war.
DW
21 hours ago
- DW
NATO likely to hike defense spending despite economic woes – DW – 06/05/2025
The military alliance looks set to satisfy US President Donald Trump's demands to commit to a massive increase in defense spending. Some creative counting proposed by NATO head Mark Rutte could soften the financial blow. A NATO defense ministers' meeting in Brussels on Thursday showed "broad support" for signing off a historic hike in defense spending at a crunch summit later this month. This was their response to the growing threat from Russia and a "more dangerous world" in general, the military alliance's Secretary General Mark Rutte told reporters. "I will propose an overall investment plan that would total 5% of gross domestic product in defense investment," Rutte announced, following months of pressure from US President Donald Trump for allies to more than double the present target. Current NATO guidelines encourage states to spend 2% of their economic output on their militaries. But not all of the alliance's members meet this target, raising questions of how they will reach an even higher spending goal. Splitting the bill In response, NATO chief Rutte has specified a division of the new spending goal that could allow Trump to claim a headline figure, while giving the other 31 nations room to maneuver their national budgets. Thus, of the 5%, 3.5% of national GDP could be allotted to "core defence spending", while the remaining 1.5% could be diverted to "defense- and security-related investment like infrastructure and industry," he said. Allied defense ministers gathered at the NATO headquarters in Brussels Image: Dursun Aydemir/Anadolu/picture alliance Trump has long criticized NATO allies for relying on the US' large military might as a strategy to defend the European continent. In 2023, more than two thirds of the 32 NATO countries' collective $1.3 trillion (€1.14 trillion) military spending came from Washington, according to data compiled by the Stockholm International Peace Research Institute (SIPRI). On Thursday, US Secretary of Defense Pete Hegseth drove home the message to the rest of the alliance once again. "Every shoulder has to be to the plough. Every country has to contribute at that level of 5% as a recognition of the nature of threat," he said. Leaders of the world's most powerful defense alliance are set to gather in three weeks in the Dutch city The Hague. Topping the agenda will be discussions on the ongoing war in Ukraine, and Russia's resulting massive rearmament drive. It seems likely that NATO members will officially commit to the 5% goal at these upcoming talks. Giving in to pressure Under US pressure, and with Europeans alarmed by Russia's full-scale invasion of Ukraine in 2022, NATO military spending has already burgeoned in recent years. Most countries now meet the 2% threshold, which was agreed upon 11 years ago. But around one third of the alliance still doesn't, including Portugal, Italy, Canada, Belgium, and Spain. Most NATO states had indicated willingness to spend more, but the 5% goal was considered far-fetched when Trump floated the idea earlier this year. Almost half a year on, the message seems to be resonating with many in the alliance. Earlier this week, 14 NATO states, including the Czech Republic, Hungary, Poland and the five Nordic states, published a joint statement in which they said they were "moving towards reaching at least 5% of GDP on defense and defense-related investments." Specter of war: Are Europeans really ready to rearm? To view this video please enable JavaScript, and consider upgrading to a web browser that supports HTML5 video Last month, German Foreign Minister Johann Wadepuhl also indicated Germany could get on board with the goal. Several NATO countries, including Poland, Estonia and Lithuania, have already committed to spending 5% or more in the future. All are former Soviet states, and two of them share a border with Russia. Since taking office in January, the "America-first" president has strained the NATO alliance with threats not to help defend alliance members that didn't meet spending targets should they be attacked. His designs on the semi-autonomous Danish territory Greenland have also alienated allies, as have his attempts at bilateral talks to find an end to Russia's war in Ukraine, which sidelined European partners and left Ukrainian President Volodymyr Zelenskyy largely marginalized. Questions remain There are still many open questions to be answered, one of them being the timeline. On Thursday, Estonian Defense Minister Hanno Pevkur spoke of committing to reaching 5% within five years. "We don't have time for ten years, we don't even have time for seven years, to be honest," he said. But the official focus at this week's meeting was on working out what exact capabilities NATO would need and may currently be missing to defend itself if a member of the alliance were attacked. After the talks, Rutte spoke of the need to upgrade air defense systems and long-range missiles, among other things. German Defense Minister Boris Pistorius said Germany might need as many as 50,000 – 60,000 more troops in its standing forces to meet defense needs in the coming years. Increased spending amid economic downturn While consensus appears to be forming, it is also clear that increasing military spending to 5% of GDP would be an enormous strain on public finances, particularly as Europe's two major economies, Germany and France, face tough times. Paris and Berlin are touting increased defense spending as a chance to fuel economic growth in Europe, but there is a risk of public backlash. In April in Rome, the opposition Five Star Movement led a protest against an EU drive to rearm the bloc — a move supported by the government of far-right Prime Minister Giorgia Meloni — reportedly drawing tens of thousands of people. According to Cullen Hendrix, an expert from the Peterson Institute for International Economics, a US think tank, a 5% spending target would essentially put NATO countries on "war footing." US secretary of State Pete Hegseth was in Brussels for the last NATO gathering before next month's summit Image: Bob Reijnders/Middle East Images/AFP/Getty Images "In 2023, just nine countries spent 5% of GDP or more on defense: Algeria, Armenia, Israel, Lebanon, Oman, Russia, Saudi Arabia, and South Sudan," Hendrix wrote in February. "Most are, or were, at war. Five of these are authoritarian petro-states, unencumbered by competitive elections or the need to tax their populaces to fund this military largesse." There is also a risk that increased spending will make Europe less safe, Hendrix warned. "Increasing military spending to this extent would likely catalyze an arms race with those near-peer competitors." On Thursday in Brussels, Rutte argued there was little choice but to spend significantly more on defense, pointing to recent comments by the German Chief of Defense Carsten Breuer, who posited that Russia would be ready to mount an attack on NATO states by 2029. "We live in a more dangerous world," Rutte said. "We are safe today, but if we don't do this, we are not safe in the foreseeable future." Edited by: Maren Sass
DW
2 days ago
- DW
NATO likely to hike defense spending, amid economic concerns – DW – 06/05/2025
The military alliance looks set to satisfy US President Donald Trump's demands to commit to a massive increase in defense spending. Some creative counting proposed by NATO head Mark Rutte could soften the financial blow. NATO defense ministers meeting in Brussels on Thursday showed "broad support" for signing off a historic hike in defense spending at a crunch summit later this month. This was their response to the growing threat from Russia and a "more dangerous world" in general, the military alliance's Secretary General Mark Rutte told reporters. "I will propose an overall investment plan that would total 5% of gross domestic product in defense investment," Rutte announced, following months of pressure from US President Donald Trump for allies to more than double the present target. Current NATO guidelines encourage states to spend 2% of their economic output on their militaries. But not all of the alliance's members meet this target, raising questions of how they will reach an even higher spending goal. Splitting the bill In response, NATO chief Rutte has specified a division of the new spending goal that could allow Trump to claim a headline figure, while giving the other 31 nations room to maneuver their national budgets. Thus, of the 5%, 3.5% of national GDP could be allotted to "core defence spending", while the remaining 1.5% could be diverted to "defense- and security-related investment like infrastructure and industry," he said. Allied defense ministers gathered at the NATO headquarters in Brussels Image: Dursun Aydemir/Anadolu/picture alliance Trump has long criticized NATO allies for relying on the US' large military might as a strategy to defend the European continent. In 2023, more than two thirds of the 32 NATO countries' collective $1.3 trillion (€1.14 trillion) military spending came from Washington, according to data compiled by the Stockholm International Peace Research Institute (SIPRI). On Thursday, US Secretary of Defense Pete Hegseth drove home the message to the rest of the alliance once again. "Every shoulder has to be to the plough. Every country has to contribute at that level of 5% as a recognition of the nature of threat," he said. Leaders of the world's most powerful defense alliance are set to gather in three weeks in the Dutch city The Hague. Topping the agenda will be discussions on the ongoing war in Ukraine, and Russia's resulting massive rearmament drive. It seems likely that NATO members will officially commit to the 5% goal at these upcoming talks. Giving in to pressure Under US pressure, and with Europeans alarmed by Russia's full-scale invasion of Ukraine in 2022, NATO military spending has already burgeoned in recent years. Most countries now meet the 2% threshold, which was agreed upon 11 years ago. But around one third of the alliance still doesn't, including Portugal, Italy, Canada, Belgium, and Spain. Most NATO states had indicated willingness to spend more, but the 5% goal was considered far-fetched when Trump floated the idea earlier this year. Almost half a year on, the message seems to be resonating with many in the alliance. Earlier this week, 14 NATO states, including the Czech Republic, Hungary, Poland and the five Nordic states, published a joint statement in which they said they were "moving towards reaching at least 5% of GDP on defense and defense-related investments." Specter of war: Are Europeans really ready to rearm? To view this video please enable JavaScript, and consider upgrading to a web browser that supports HTML5 video Last month, German Foreign Minister Johann Wadepuhl also indicated Germany could get on board with the goal. Several NATO countries, including Poland, Estonia and Lithuania, have already committed to spending more 5% or more in the future. All are former Soviet states, and two of them share a border with Russia. Since taking office in January, the "America-first" president has strained the NATO alliance with threats not to help defend alliance members that didn't meet spending targets should they be attacked. His designs on the semi-autonomous Danish territory Greenland have also alienated allies, as have his attempts at bilateral talks to find an end to Russia's war in Ukraine, which sidelined European partners and left Ukrainian President Volodymyr Zelenskyy largely marginalized. Questions remain There are still many open questions to be answered, one of them being the timeline. On Thursday, Estonian Defense Minister Hanno Pevkur spoke of committing to reaching 5% within five years. "We don't have time for ten years, we don't even have time for seven years, to be honest," he said. But the official focus at this week's meeting was on working out what exact capabilities NATO would need and may currently be missing to defend itself if a member of the alliance were attacked. After the talks, Rutte spoke of the need to upgrade air defense systems and long-range missiles, among other things. German Defense Minister Boris Pistorius said Germany might need as many as 50,000 – 60,000 more troops in its standing forces to meet defense needs in the coming years. Increased spending amid economic downturn While consensus appears to be forming, it is also clear that increasing military spending to 5% of GDP would be an enormous strain on public finances, particularly as Europe's two major economies, Germany and France, face tough times. Paris and Berlin are touting increased defense spending as a chance to fuel economic growth in Europe, but there is a risk of public backlash. In April in Rome, the opposition Five Star Movement led a protest against an EU drive to rearm the bloc — a move supported by the government of far-right Prime Minister Giorgia Meloni — reportedly drawing tens of thousands of people. According to Cullen Hendrix, an expert from the Peterson Institute for International Economics, a US think tank, a 5% spending target would essentially put NATO countries on "war footing." us secretary of State Pete Hegseth was in Brussels for the last NATO gathering before next month's summit Image: Bob Reijnders/Middle East Images/AFP/Getty Images "In 2023, just nine countries spent 5% of GDP or more on defense: Algeria, Armenia, Israel, Lebanon, Oman, Russia, Saudi Arabia, and South Sudan," Hendrix wrote in February. "Most are, or were, at war. Five of these are authoritarian petro-states, unencumbered by competitive elections or the need to tax their populaces to fund this military largesse." There is also a risk ithat increased spending will make Europe less safe, Hendrix warned. "Increasing military spending to this extent would likely catalyze an arms race with those near-peer competitors." On Thursday in Brussels, Rutte argued there was little choice but to spend significantly more on defense, pointing to recent comments by the German Chief of Defense Carsten Breuer, who posited that Russia would be ready to amount an attack on NATO states by 2029. "We live in a more dangerous world," Rutte said. "We are safe today, but if we don't do this, we are not safe in the foreseeable future." Edited by: Maren Sass
