London, UK—October 8, 2025
European Central Bank (ECB) President Christine Lagarde has highlighted the strength of the Euro as a crucial shield for the Euro area economy, even as she acknowledged that new US tariffs are expected to reduce overall Euro area exports by approximately 0.9%, a projected loss of roughly €66 billion. The ECB President’s remarks underscore a key economic dynamic: in a world increasingly defined by geopolitical uncertainty, the single currency is providing a counter-intuitive source of stability, attracting capital flows and appreciating against the US Dollar despite trade tensions.
Speaking on the international role of the Euro, Lagarde confirmed the findings of ECB analysis which detailed the precise expected impact of the new US tariff regime. While the tariffs are projected to cut Euro area exports to the United States by approximately 9% (as the US accounts for 10% of total Euro area exports), the subsequent effect on overall exports is calculated to be a 0.9% decline, equating to a substantial €66 billion reduction in trade value. However, Lagarde framed this challenge as an opportunity for the Euro to solidify its role as a global anchor of trust.
Euro’s Resilience: A Counter-Intuitive Trend
Lagarde pointed to the Euro’s recent appreciation against the US Dollar as evidence of Europe’s perceived stability compared to the policy uncertainty emanating from the United States. This appreciation is counter-intuitive to traditional economic models, which would typically predict a depreciation of the Euro in the face of major trade shocks.
“It’s impressive to note that in a period of uncertainty when we should normally have seen the dollar appreciate significantly, the opposite happened: the euro appreciated against the dollar,” Lagarde said.
This phenomenon is attributed to investors seeking safe-haven assets and losing confidence in the predictability of US policies. The Euro area, with its robust rule of law, sound currency, and an independent central bank, is rightly perceived as a stable economic and political area. This influx of capital into Euro-denominated assets has, in turn, allowed the Euro area to weather the “tariff storm” better than initially feared, with the strengthening Euro providing a degree of support.
Mitigating the Tariff Impact
To counteract the projected €66 billion blow to exports, the ECB President presented a clear path forward for Eurozone policymakers and businesses: leveraging the Single Market.
ECB analysis suggests that a mere 2% increase in intra-Euro area trade would be sufficient to entirely offset the loss in exports to the United States caused by the higher tariffs. This recommendation serves as a strong call for deepening economic integration and removing remaining barriers within the European Union. By further exploiting its own vast internal market, Europe can create the scale necessary for firms to thrive and become more resilient to external trade and geopolitical shocks.
Lagarde also encouraged the EU to broaden its global trade horizons. While the US remains an important partner, she urged Europe to deepen its trade ties with other jurisdictions, noting that new agreements could boost EU exports to those partners by as much as 40% by 2032.
A Unique Opportunity for Global Dominance
The current climate of instability is viewed by Lagarde not just as a threat, but as a unique opportunity for Europe to strengthen the global role of its currency and supplant the dominance of the US Dollar.
For this vision to be realised, the ECB chief stressed that “Europe must do its homework.” The necessary steps include:
* Integrating capital markets to create a safe and liquid pool of assets.
* Safeguarding central bank independence.
* Developing a “digital euro” that operates independently of foreign (US) payment infrastructure.
A more “global” Euro would grant businesses, households, and governments in the Euro area the “exorbitant privilege” currently enjoyed by Washington: lower borrowing costs shielded from volatile exchange rates and capital flows.
While the Euro’s share of global currency usage has remained largely flat at about 19% since 2010, Lagarde insists that the current geopolitical shifts make this the optimal time to push for change. “The Euro won’t gain further ground by default,” she warned. “If Europeans want to strengthen the international role of the euro, they’ll have to earn it.”
Headline Points
* Tariff Damage Quantified: New US tariffs are expected to reduce overall Euro area exports by 0.9%, equivalent to a loss of roughly €66 billion.
* Euro’s Strength: The Euro has appreciated against the Dollar, a “counter-intuitive, but justified” move driven by global investors seeking stability and losing confidence in US policy.
* Single Market Solution: The ECB stated that a 2% increase in intra-Euro area trade would be enough to offset the full impact of the US export losses.
* Call to Action: ECB President Lagarde urged European leaders to seize the “unique opportunity” to deepen capital markets, develop a digital euro, and expand trade to cement the Euro’s role as a global anchor of trust.
* Growth Outlook: Despite the trade uncertainty, ECB staff forecasts expect Eurozone growth to reach 1.2% in 2025, an increase from earlier projections.
