Barclays Europe CEO on what Trump's tariffs could do to the EU economy

“There is a foundation to believe in the attractiveness of Europe, especially on a relative basis,” Francesco Ceccato, Barclays Europe CEO, told Euronews' Business Editor, Angela Barnes, in an exclusive interview.

“What we've seen in the year-to-date period is clearly a compression in the US stock market, for example, and an increase in the indices that I look at for the European stock market.”

According to a recent report from Morgan Stanley, European equities have this year outperformed US stocks by the widest margin since 2000.

The MSCI Europe Index has risen over 9% since January, beating the S&P’s slide of 4.5%.

To turn to the latest Fund Manager Survey from Bank of America, released this Tuesday, the data also showed the most significant rotation from US to European equities since records began in 1999.

A net 39% of fund managers now hold an overweight position in European equities, the highest level since mid-2021. On the other hand, 23% of investors report being underweight US stocks.

Despite the recent rally, researchers from Goldman Sachs have predicted that the uptick isn't fleeting. Last week, they suggested that European equities would rise as much as 6% in the next 12 months.

A tariff war

“There is clearly a lot of concern amongst the investors…around what some of the trade disruption might do to the economy,” Ceccato said, referring to tariff threats from US President Donald Trump.

The White House noted on Tuesday that new reciprocal tariff rates would take effect on 2 April, despite suggestions that they could be delayed.

While the US is looking to mirror some trade barriers established by other nations, it has also imposed another raft of levies.

Trump has - for instance - introduced a 25% tariff on all steel and aluminium imports. That’s as well as placing a 20% tariff on incoming Chinese goods and threatening a 200% levy on EU alcohol imports.

Trade policies are likely to have “significant” impacts on the US, said Ceccato, harming growth and pushing up inflation.

Ceccato added that Europe is also set to suffer from a tariff war, although economies could see a boost from extra defence spending.

"The euro area has roughly €480 billion of goods exports to the US. Now, at the moment, the latest models that our research team have looked at are relatively mild in terms of the tariff assumption that's being made. But were there to be a 25% tariff on all of those goods, that could actually tip the eurozone into recession,” he said.

Greater defence spending

Meanwhile, Germany’s parliament has just this week approved a reform of its debt brake proposed by chancellor-in-waiting Friedrich Merz, which allows for more fiscal flexibility.

Defence spending of more than 1% of GDP will be exempted from the strict debt limit and state governments will be allowed to run annual deficits of up to 0.35% of GDP. The bill will also establish a €500 billion fund to invest in the country’s ageing infrastructure.

On the prospect of greater military spending, Europe’s defence companies are cashing in. Rheinmetall shares are up around 124.8% in the year to date, Thales stock has jumped 79.2%, while shares in Leonardo have risen 82.9%.

Savings and Investments Union

Discussing how Europe can further improve its competitiveness, Ceccato noted that the EU still needs to work on developing deeper pools of capital.

“We also need to think creatively about how we can use…the firepower that we have in some of our European institutions to pair up with private capital, that is, institutional capital that can be brought to bear to tackle some of these Herculean challenges,” he said.

Ceccato explained that if Europe wants to effectively support its industries, it cannot solely rely on retail investments made by members of the public.

Compared to EU firms, companies in the US still find it easier to access capital due to the scale of the market and flexible funding options. A more risk-averse sentiment in the EU, as well as a more fragmented financial market across diverse member states, can hamper innovation.

"This is still all about capital, capital, capital," said Ceccato.