By: Dr. Adnan Bouzan 

At the beginning of his second term, U.S. President Donald Trump announced his intention to impose new tariffs of up to 25% on imports from the European Union. With the escalation of the trade wars he has initiated, some did not expect his policies to have a rapid impact on the European economy, which is already facing huge challenges. However, with ongoing economic crises in major EU countries, Trump may find himself involved in a confrontation that could not only lead to further economic deterioration in Europe but also potentially trigger a new debt crisis in the Eurozone.

1. The Economic Threats Facing Europe:

The Eurozone economy, particularly in major countries like Germany, Italy, and France, is facing numerous economic challenges. Germany, as the largest economy in the region, is going through a difficult period following a prolonged contraction caused by multiple shocks, from the aftermath of the COVID-19 pandemic to the energy crisis resulting from the war in Ukraine, in addition to the slowdown in Chinese demand for German goods. These factors have contributed to a decline in Germany's economic growth, leading to a recession in 2023, further exacerbating the vulnerability of the economy across the Eurozone.

2. France and Italy: The Burden of Growing Debt:

In addition to the economic challenges in Germany, Italy and France face their own economic crises, where both countries are suffering from record levels of public debt that exceed those seen during the sovereign debt crisis at the beginning of the past decade. As a result, there is a massive budget deficit, which is difficult to address under the current economic conditions. Despite efforts made, it seems that both the French and Italian governments lack the political will necessary to find sustainable solutions to these financial problems.

3. Trump and the Implications of Trade Policies:

Apart from the internal issues facing Eurozone countries, Trump's recent statements regarding the imposition of tariffs on EU imports could exacerbate the economic crisis in the region. The trade policy followed by the U.S. president may further weaken the German economy, which could directly affect Italy and France. These countries are already facing challenges in dealing with their debts, and the situation is further complicated by the decline in demand for their exports, which intensifies the economic burdens on these countries.

4. The Risk of a General Recession in the Eurozone:

If these protectionist policies continue under the U.S. administration, they could lead to a broad recession in the Eurozone. This would increase pressure on European financial markets and undermine their ability to bear the growing economic burdens. If a recession impacts some EU countries like Germany, it will negatively affect the exports of other countries in the region, such as Italy and France, which heavily rely on exports to boost their economic growth.

5. Potential Global Market Impacts:

The United States cannot ignore the negative impacts that may result from sparking a new crisis in the Eurozone. The financial crisis that Greece went through in 2010 demonstrated how European economic crises can affect global financial markets. Considering the close trade relations between the U.S. and the European Union, any crisis in Europe will not be confined to this region alone but will have global repercussions, especially in financial markets, which may experience significant volatility.

6. The Region’s Future: Europe’s Preventive Options:

While it seems that the U.S. administration may continue to pursue tough trade policies, Europeans need long-term strategies to address these challenges. These strategies could involve structural reforms in the European economy to ensure competitiveness and help reduce financial burdens. The reforms proposed by Mario Draghi, the former President of the European Central Bank, are considered essential steps that could assist in the long-term recovery of the European economy.

Conclusion:

It is clear that any further deterioration in the European economy as a result of Trump's policies could lead to a new debt crisis in the Eurozone. Therefore, it is important for the U.S. president to reconsider the implications of his policies on Europe and the world. At the same time, European policymakers must be prepared to face the upcoming challenges by adopting bold economic reforms that contribute to ensuring the stability of the region and addressing any future economic threats.