In remarks at a G30 panel, European Central Bank President Christine Lagarde argued that Europe’s external position is being misread in the current debate on global imbalances and trade tensions. She said the euro area is not a primary source of global imbalances, its current account surplus has been shrinking, and coercive trade measures against Europe would not resolve the United States’ external deficit. Lagarde noted that the euro area and China each account for about one-quarter of the world’s current account surplus, while the United States represents around three-quarters of the global deficit, but said Europe’s bilateral balances with the United States and China do not support the narrative of “unfair” trade. The euro area runs a deficit of almost EUR 150 billion with China, widening by around 10% this year, while trade with the United States is broadly balanced once a goods surplus and services deficit are netted, with much of both linked to US multinationals’ activity in Europe (ECB estimates put around 30% of the bilateral goods surplus and about 90% of the services deficit on those firms). She said the euro area’s overall surplus has fallen from almost 4% of GDP in 2018 to 2.1% in the first half of 2025 and is projected to remain around that level, as earlier drivers such as export strength and fiscal consolidation fade, including amid a roughly 32% real appreciation against China since the start of 2022 and more supportive fiscal policy (an average fiscal deficit expected to be just over 3% of GDP over the next three years). Lagarde also attributed much of the remaining surplus to demographics, citing IMF staff assessments that the euro area current account gap was around 1% of GDP in 2024. On responses, she warned that persistent trade policy volatility could raise precautionary saving in Europe and reduce imports from the United States, and cited ECB survey evidence that around a quarter of consumers report switching away from US products and roughly 16% cutting overall spending in response to tariff-related concerns. She also called for closer coordination among allies to address “weaponised dependencies” such as rare earths, and argued that strengthening domestic demand, including by deepening the Single Market, could cushion external shocks, citing ECB analysis that a 2% increase in intra-euro area trade could fully offset potential export losses to the United States from current tariffs.
European Central Bank 2025-10-18
European Central Bank President Lagarde says the euro area current account surplus has fallen to 2.1% of GDP and is not a key driver of global imbalances
European Central Bank President Christine Lagarde, at a G30 panel, argued that Europe's external position is misunderstood, noting the euro area's shrinking current account surplus and balanced trade with the U.S. She highlighted a significant trade deficit with China and attributed the remaining surplus to demographics. Lagarde warned that trade policy volatility could impact European imports from the U.S. and advocated for closer coordination among allies to address dependencies and strengthen domestic demand.