The European Central Bank has issued a stark warning that Donald Trump's war with Iran and his unpredictable trade policies could spark a global financial crisis. In its biannual Financial Stability Report, ECB Vice President Luis De Guindos stated that the conflict in the Middle East has put the resilience of the financial system 'to the test.'
Economic Fallout and Trade Uncertainty
'While the full impact of the war is unclear at this stage, the repercussions for the global economy and financial stability are becoming graver the longer it lasts,' De Guindos wrote. The ECB noted that the economic fallout from the Iran war has driven up inflation and damaged growth, but it also blamed volatility in Trump's trade policies. The bank expressed concern that the US president is pulling Washington back from its traditional role of global leadership, exacerbating threats to the financial system.
'Uncertainty surrounding the commitment of the US administration to multilateral co-operation is also increasing the risk that policy shocks will disrupt the international order and spur geoeconomic and regulatory fragmentation around the globe,' the bank said. It added that 'tariff announcements, pauses and reversals have become a structural feature of the global environment.'
Strait of Hormuz and Ceasefire Strains
The warning from the ECB comes after Trump said last week that a deal with Iran, including opening the Strait of Hormuz, has been 'largely negotiated.' Iran's decision to close the Strait of Hormuz after the war started has been a focal point of global concern and economic pain. 'Final aspects and details of the Deal are currently being discussed, and will be announced shortly,' Trump said on social media on Saturday. He said he had spoken with leaders from Saudi Arabia, the United Arab Emirates, Qatar, Pakistan, Turkey, Egypt, Jordan, Bahrain, and separately with Israel. He described it as a 'Memorandum of Understanding pertaining to PEACE' that must be finalised by the US, Iran, and the other countries that participated in the calls.
Twelve weeks have passed since the US and Israel attacked Iran on February 28, killing top Iranian officials, including its supreme leader, and interrupting nuclear talks between the US and Iran for the second time in less than a year. Iran fired at Israel and at neighbours hosting US forces, shaking Gulf nations that had considered themselves safe havens in a tough region. A ceasefire has held since April 7, but it was shaken on Monday when the US military said it had carried out 'self-defence' strikes in southern Iran, including on missile launch sites and boats placing mines. The strikes were done 'to protect our troops from threats posed by Iranian forces,' but the military was 'using restraint during the ongoing ceasefire,' Captain Tim Hawkins, the spokesman for the US military's Central Command, said in a statement.
