In a speech, European Central Bank (ECB) Executive Board member Piero Cipollone argued that geopolitical tensions and recently announced US tariff hikes are making economic and financial fragmentation increasingly visible, with implications extending beyond near-term volatility to growth, capital flows and the international monetary system. He set out a central bank agenda focused on better monitoring and modelling of fragmentation, adapting monetary policy to more frequent and persistent supply shocks, reinforcing international cooperation, and strengthening financial stability contingency planning. The address pointed to geopolitical risk running 50% above the post-global financial crisis average and trade policy uncertainty at more than eight times its average since 2021, even as headline figures show record world trade of USD 33 trillion in 2024 and a global foreign direct investment stock of USD 41 trillion. Cipollone cited evidence that a doubling of geopolitical distance can cut bilateral trade by around 20%, that trade between geopolitical “rivals” is about 4% lower while trade between “friends” is roughly 6% higher than it otherwise would have been, and that correspondent banking relationships have fallen by 20% since 2014, with severed corridors associated with sharply lower export persistence over time. He also referenced the International Monetary Fund’s downward revisions to global growth and trade projections for 2025-26, the recent weakening of the US safe-haven pattern alongside euro area safe-haven flows, and signs of reserve diversification as central banks bought more than 1,000 tonnes of gold in 2024, lifting gold’s share of global official reserves to 20%. On international payments cooperation, the ECB was described as pioneering a cross-currency settlement service via TARGET Instant Payment Settlement (TIPS), initially linking the euro, the Swedish krona and the Danish krone, and exploring connections with other fast-payment systems bilaterally and through multilateral approaches such as the BIS Project Nexus. Cipollone also linked any larger international role for the euro to deeper, more integrated European capital markets and the development of European safe assets.
European Central Bank 2025-04-29
European Central Bank’s Cipollone warns fragmentation is reshaping trade and finance and highlights TIPS cross-currency settlement plans
ECB Executive Board member Piero Cipollone noted geopolitical tensions and US tariff hikes are fragmenting the economy, impacting growth, capital flows, and the monetary system. He stressed enhanced monitoring, monetary policy adaptation, international cooperation, and financial stability planning. Cipollone also discussed the ECB's pioneering role in cross-currency settlement services and the euro's potential international expansion with integrated European capital markets.