Bundesbank head says tariffs may crush hopes for German growth

By Maria Martinez

DURBAN, South Africa (Reuters) -The head of Germany's Bundesbank warned on Thursday that the high import tariffs U.S. President Donald Trump currently plans to impose on European goods risk wiping out even a modest recovery in Europe's largest economy in the coming years.

Germany is battling to stave off a third consecutive year of recession in 2025, but Trump's 30% tariff on goods imports from Europe would, if implemented, erase whole chunks of transatlantic commerce and force a rethink of its export-led economic model.

"If tariffs materialise in August, a recession in Germany in 2025 cannot be ruled out," Bundesbank President Joachim Nagel said in Durban, South Africa, where the meeting of G20 finance chiefs is taking place on Thursday and Friday.

The Bundesbank forecast a stagnation this year and slight growth of 0.7% in 2026, before the tariff rate was announced last week.

The projected growth for next year is no longer secure, with Nagel warning it could "possibly be completely eaten up by the tariffs that are now being discussed".

AUGUST DEADLINE

With European leaders hoping they can still win some kind of reprieve from Trump before his August 1 deadline, Nagel urged negotiators to aim for a significant reduction in the announced tariffs, which ideally should not be implemented at all. "That must be the goal."

Turning to any potential EU response if a deal is not reached, Nagel said all options should be considered, including the so-called anti-coercion instrument, which allows the bloc to retaliate against third countries that put economic pressure on EU members to change their policies.

"I think all possible options must be considered for how to respond appropriately," Nagel told Reuters.

"I don't think anything should be ruled out, and in the end it's also about Europe making it clear that it can pursue a very self-confident policy."

EUROPEAN CONFIDENCE-BUILDING

The Bundesbank chief and ECB policymaker also issued a stark warning against interfering with the independence of central banks, following Trump's attacks on Federal Reserve Chair Jerome Powell.

"Independence of central banks is the DNA of central banks," Nagel said. "So I believe it is dangerous to play with the independence of a central bank."

Trump regularly berates the U.S. central bank chief for not lowering interest rates. Bloomberg reported on Wednesday that Trump was likely to fire Powell. While Trump said the report was not true, he confirmed that he had floated the idea with Republican lawmakers.

The German central banker said uncertainty created by the new U.S. administration had taken a toll on the dollar in the first half of the year.

Europe, in contrast, offers a safer environment for investments, he said.

"I believe it could be seen as a kind of window of new opportunities coming to Europe, being an investor from outside," Nagel said, adding that European nations should be more self-confident about their strengths.

(Reporting by Maria Martinez; Writing by Rachel More; Editing by Joe Bavier)