President Donald Trump is demanding that the Federal Reserve immediately lower borrowing costs. But the war in the Middle East has now made any interest rate cuts much less likely in 2026 — not just in the U.S. but around the world. With oil prices surging past $100 a barrel and Gulf shipping routes disrupted by Iran, governments and investors are bracing for a repeat of the 2022 energy shock from Russia’s invasion of Ukraine. And from Washington to Frankfurt, and London to Tokyo, the world’s central banks are likely to strike a more wary tone on inflation while assessing the fallout during a flurry of policy meetings taking place this week. The effective closure of the Strait of Hormuz, a channel through which roughly a fifth of global oil passes, is pushing up costs not only for energy and transportation, but also for other key goods that are shipped through the waterway. The result could be a toxic mix for central banks: higher prices and lower employment, two problems they’re not equipped to address simultaneously. “My best guess, but spoken with no conviction at all, is that this gets sorted out somehow in the next few weeks, and by the middle of the year, oil prices have come back down a fair amount,” said William English, a former top staffer at the Fed who is now a professor at Yale University. “But there’s a real risk, of course, that things go on for longer and are more damaging. And in that case, all bets are off.” The specter of a prolonged global energy crunch could dash the hopes of consumers, businesses and investors worldwide for rate cuts this year — and in some cases, throw those plans in reverse. No immediate moves are likely except in Australia, which raised its target rate by a quarter-point on Tuesday. But markets have already repriced their bets on what comes next from monetary policymakers. Indeed, if the Fed does cut rates later this year, it might be one of the few major central banks that does so, given that other economies like Europe are more exposed to higher energy costs than the U.S. Before the war, investors saw a chance of cuts from the Fed, the European Central Bank and the Bank of England. Now they’re pricing in an altogether tighter policy stance: at least one ECB rate hike this year, a 60 percent chance of a BoE increase, fewer and later cuts from the Fed and more urgency in raising rates from the Bank of Japan. Central bankers will prefer to wait until they get a better gauge of the economic repercussions from the conflict because “the shock could turn out to be negligible or very large,” said EFG chief economist Stefan Gerlach. But few doubt the need for strong messaging as central banks are wary of repeating 2022, when energy price shocks combined with the after-effects from Covid and fiscal stimulus to morph into the worst inflation spike in half a century. “There will be a significant contingent worrying about upside inflation risks in light of the 2022 experience,” J.P. Morgan economist Greg Fuzesi said ahead of the ECB’s policy-making council’s meeting on Thursday. The Iran conflict is further complicating efforts by Trump to demonstrate to voters that the GOP is addressing cost-of-living concerns before this year’s midterm elections. Already, the war has caused a surge in politically salient gas prices and erased some of the progress toward more affordable mortgage rates. And it’s further muddied the picture for a central bank that the president has been pressing hard to take decisive action toward rate cuts. Now, when Chair Jerome Powell and other Fed officials meet on Wednesday, they’re expected to be more open to the idea of rate increases later this year, though that’s still not the likeliest outcome. As Yale’s English pointed out, higher costs might ultimately increase the case for rate cuts if they slow the economy significantly. “With the higher oil prices and the shock to the global economy, the likelihood of overheating seems reduced now, so that’s one of the reasons you might be comfortable waiting through some period of higher inflation,” rather than hiking rates in response, English said. “This might be enough to push the economy into real weakness, and in that case, they might well have to cut.” But if households and businesses start to worry about a new acceleration in inflation and start expecting higher prices, that dynamic can be self-fulfilling and might call for rate hikes. Hawkish policymakers are already signaling the ECB won’t hesitate this time. “A reaction by the ECB is potentially closer than many people think,” Peter Kažimír, Slovakia’s central bank governor, told Bloomberg last week. “We will be ready to act if needed.” President Christine Lagarde pledged to ensure that consumers “don’t suffer the same inflation increases like those we saw in 2022 and 2023.” Back then, the ECB was slow to react, helping inflation surge past 10 percent. Economists say today’s backdrop looks very different: In 2022, rates were near or below zero, balance sheets were bloated and fiscal policy was highly expansionary. “When inflation rose, it did so in an environment of strong demand supported by both fiscal and monetary stimulus,” said Gerlach. Now, tighter monetary and fiscal policy should limit the risk of energy shocks spilling through the economy into second-round effects. Still, Barclays analyst Silvia Ardagna says that if medium-term inflation expectations “deteriorate significantly,” she expects “the ECB to act more swiftly than in 2022, but to tighten policy gradually.” Nick Kounis, of Dutch bank ABN AMRO, also sees a more hawkish tone. “Uncertainty on the conflict is high, but if the current situation persists through to the April meeting, a hike becomes a distinct possibility,” he said. Many analysts say the first obvious central bank casualty of the war is likely to be the Bank of England, which was widely expected to cut this week but is now seen firmly on hold. That’s because the U.K. still hasn’t quite gotten on top of the inflation that was unleashed four years ago. Andrew Benito, an economist with hedge fund Point72 in London, reckons that the inevitable increase in fuel prices and household energy bills alone will add a full percentage point to headline inflation by summer, with “second-round” impacts on other prices pushing it even further away from the BoE’s target. That, says Deutsche Bank’s Sanjay Raja, will force the bank into some “uncomfortable trade-offs”: The U.K. economy has already slowed over the last year due to global trade uncertainty and various government tax hikes to close the budget deficit. Hiking rates when the economy is already struggling could risk needlessly making things worse. But any sign of complacency could be disproportionately punished by the markets, given that the BoE performed worse than any other major central bank during the last inflation shock (the headline rate peaked at over 11 percent). Raja expects BoE Governor Andrew Bailey to highlight the differences with 2022 — when inflation was accelerating rather than slowing — as one reason not to overreact to today’s price spike. However, he expects that Bailey, like the ECB and others, will talk tough about not letting business and households develop an inflationary mindset again. More important will be the Bank of Japan’s decisions and press conference on Thursday, due to the outsized influence of Japanese interest rates on global financial markets. For decades, Japan kept interest rates low and printed money furiously to escape deflation. As long as it did so, Japanese and foreign investors borrowed yen cheaply to throw at higher-yielding markets such as the U.S. Now, however, the BoJ’s concerns have finally switched from deflation to inflation, and BoJ Governor Kazuo Ueda is now in a hurry to “normalize” policy. Its key interest rate, at 0.75 percent, is the lowest in the developed world outside Switzerland. But Japan, too, faces a big headwind from higher energy prices because of its dependence on imports, and Gregor Hirt, chief investment officer for Multi Asset at Allianz Global Investors, argues that the BoJ will hesitate before raising rates again. The trouble with waiting and seeing is that the yen has already lurched lower, prompting alarm in Washington and sparking rumors of possible intervention to support it. “In order to stop further weakness, the BoJ may have to move up a rate hike to stabilize the currency,” Hirt said. Meanwhile, the war has presented the Swiss National Bank, which has kept interest rates at zero since June 2025, with a different kind of conundrum. One risk is that a global “flight to safety” drives the Swiss franc to even greater heights against the euro and others. That could make so many imports cheaper that the overall inflation rate could turn negative. Alternatively, the boost in energy prices could have the same malign impact on inflation as it will elsewhere. “The SNB will probably prefer to wait and see which of the two effects will have the greater impact on inflation prospects before acting in one direction or the other,” said ING economist Charlotte de Montpellier, who expects the Swiss central bank to stay on hold. That response, shot through with varying degrees of nervousness, looks likely to be the dominant one this week. But things will look very different if the war situation hasn’t improved by the next round of meetings.

Just three weeks after the Supreme Court handed President Donald Trump a stinging defeat over the sweeping tariffs he imposed last year, the legal battle over his first move to replace those import taxes is heating up. Democratic attorneys general and governors from 24 states and a libertarian group representing two small businesses filed their first legal briefs Friday asking a federal trade court to strike down the 10 percent tariffs Trump imposed on most U.S. trading partners in February. Trump promised to hike those tariffs to 15 percent, but hasn’t yet done so. Legal experts told POLITICO that Trump’s backup tariffs are probably on stronger legal footing than the “Liberation Day” taxes the high court struck down. Despite that, his challengers are exuding bravado about their chances. “We are 100 percent confident that we will be successful in the Court of International Trade,” New York Attorney General Letitia James told reporters last week. Trump is also projecting confidence, repeatedly claiming that the same Supreme Court went ahead and blessed his use of other authorities, like the so-called Section 122 tariffs he’s turned to as a short-term fix. That is not true. While the three justices who dissented from last month’s decision did cite Section 122 as one of the tools Trump could use to rebuild his tariff scheme, the court’s six-justice majority explicitly declined to embrace that position. “We do not speculate on hypothetical cases not before us,” Chief Justice John Roberts wrote. While Trump called his new approach “time tested,” that authority has never been invoked before and the high court has not given its blessing to Trump using that specific law in the current circumstances. Here’s a look at the key issues in the legal fight over Trump’s replacement tariffs: A NEW RATIONALE The Supreme Court resolved the earlier Trump tariff case by finding that the statute Trump invoked, the International Economic Emergency Powers Act, conferred no power on any president to impose tariffs. With that off the table, the court did not have to examine whether the global emergency Trump asserted existed. The new challenges could face a bigger hurdle because their arguments will require judges to second guess Trump’s conclusion that the U.S. faces a “large and serious balance-of-payments deficit.” “The bottom line here is: How much deference does the president get in determining … this sort of predicate condition — that there’s a large and serious payments problem?” said Matthew Seligman, a lawyer representing importers seeking refunds of the previous tariffs. “How much deference does the president get in his determination in deciding how large is large and how serious is serious?” “I think [it] will probably be the court’s instinct to defer to the president’s determination that, whatever it is ‘balance of payments’ means, that the requisite facts on the ground exist,” Duke University law professor Timothy Meyer said. DEFINING ‘BALANCE OF PAYMENTS’ The text of the law Trump invoked for his latest round of tariffs, Section 122 of the Trade Act of 1974, makes eight references to “balance of payments” issues. Yet, it offers no definition of the term. Some experts contend the phrase refers to a specific problem the U.S. faced in the years leading up to the law’s enactment, involving the U.S. government buying or selling foreign currency to adjust or maintain exchange rates. “A balance of payments deficit is a term of art incorporating into law a settled meaning from international financial accounting,” the blue states’ lawsuit says. “A trade deficit does not qualify, either as a matter of economics or of law, as a balance of payments deficit.” “The president has tried to pull a fast one by switching the term balance of payments to mean balance of trade, in other words, a trade deficit. But those two things aren’t the same thing,” said Jeffrey Schwab of the Liberty Justice Center. However, other experts say the lack of a definition may indicate that different lawmakers had different views of what “balance of payments” meant and what problem they were trying to fix. “They had a broader set of problems in mind … .They weren’t seemingly talking about just official payments,” said Brad Setser, a Treasury Department official under President Barack Obama and an adviser to the U.S. Trade Representative under President Joe Biden. One awkward aspect for the White House: during the pitched battle over the “Liberation Day” tariffs, the administration’s lawyers suggested that Section 122 wasn’t a viable option to address the trade deficit. “Trade deficits … are conceptually distinct from balance-of-payments deficits,” Justice Department attorneys told the Court of Appeals for the Federal Circuit last June. TRUMP’S CARVE-OUTS The law Trump invoked for the replacement tariffs says they should be “of broad and uniform application,” but the president’s approach seems far from that standard. Attached to the proclamation he issued are 88 pages of exemptions and exceptions. The fine print waives the new tariffs for Mexico and Canada and some goods coming from Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, or Nicaragua. Trump also carved out a slew of product categories where consumers regularly complain about higher prices, including many foods, cars and prescription drugs. “The exemptions and exceptions the President has made are in direct violation of the text of Section 122, which requires generally uniform treatment the President is declining to observe,” Liberty Justice Center argues in the lawsuit filed on behalf of two importers, Burlap and Barrel and Basic Fun! But the law does contain wiggle room to exclude some products or single out countries in some circumstances. Trump’s proclamation seeks to invoke those exceptions, although many dispute whether his assertions about the current state of global trade and “the needs of the United States economy” are actually true or are just parroting the language in the statute. It’s unclear whether judges will accept Trump’s claims at face value and whether they have time to dig into such factual disputes on the accelerated timetable the challengers have demanded. Another uncertainty is whether a court that strikes down the carve-outs would throw out the tariffs altogether or do what Trump’s proclamation urges in such a scenario: wipe out the exemption and keep the broader tariffs. CAN THE COURTS BEAT THE CLOCK? The law Trump used to deploy the new tariffs limits his move to 150 days, roughly five months. While that may weaken Trump’s hand in negotiations with trading partners and force him to look to other tools to sustain his tariff policies, the short fuse means that the courts are unlikely to deliver a final verdict on the legality of the president’s action before it expires on July 24. In the challenges to Trump’s earlier tariffs, lower courts ruled against the policies but allowed the administration to keep collecting the duties while the fight played out. If the pattern holds, it could take months for the lower courts to consider the issues and a year or more if the Supreme Court decides to weigh in. To actually halt the tariffs, opponents will likely have to persuade the trade court or the Federal Circuit to refuse to issue the stays that the White House won the last time around. The Court of International Trade has set arguments on the pending suits, including a request for a preliminary injunction, for April 10. But some expect these cases to take longer to decide than the last time. “I would expect, at every level, that the time to write an opinion would be longer than it was in the IEEPA case because the issues are just more complicated,” Meyer said. WOULD TRUMP DOUBLE DIP? Some trade experts have speculated that, if the courts don’t stop the new tariffs by the time they are set to expire in July, Trump could attempt to re-issue them for another 150 days, perhaps with a few tweaks to make them a bit different than during the first phase. The statute doesn’t directly prohibit re-upping, but does say it’s up to Congress to extend such tariffs beyond the 150-day period. “It’s arguably a little ambiguous, if he wanted to re-declare a balance of payments emergency right after,” said Stanford Law Professor Alan Sykes. “Certainly the statutory language, to me, implies that the Congress did not want to leave that loophole in place. If I were the judge, I would say that that’s not permissible.”

WARSAW — President Karol Nawrocki said Thursday evening he intends to veto government legislation that lays out the how Poland should spend its €43.7 billion allocation under the EU’s loans-for-weapons scheme known as SAFE. Prime Minister Donald Tusk’s government lacks the necessary votes in the country’s parliament to override the veto. The standoff will inevitably escalate the political feud between Tusk and the president over Poland’s political orientation. Nawrocki, like the nationalist-populist opposition Law and Justice (PiS) party that supports him, views Brussels with skepticism, unlike the pro-EU Tusk administration. Poland is the only country where SAFE has become a political issue. European Commission President Ursula von der Leyen said in December that EU countries had already gobbled up the whole €150 billion from SAFE and were clamoring for more. “The President has lost the chance to act like a patriot. Shame!” Tusk posted on X shortly after Nawrocki announced his decision. The PM said the government will convene for an extraordinary session Friday morning to prepare a response. GOVERNMENT ALLEGES “NATIONAL TREASON” The EU program provides low-interest, long-term loans with a 10-year grace period for principal repayments. The funds are raised by Brussels on capital markets and offer significant savings compared to national borrowing — a crucial issue for Poland, which plans to devote 4.8 percent of its GDP to defense this year. Following Nawrocki’s veto decision, Poland’s SAFE allocation will remain guaranteed, but the rules for spending it will likely be less flexible than they would have been under the legislation Nawrocki blocked. The government had planned to use the money to boost financing for the Border Guard and the police or to upgrade infrastructure. Foreign Minister Radosław Sikorski said before the decision: “If the President vetoes SAFE and we still implement it … I will propose that a plaque with the inscription be placed on every rifle, tank, gun, drone, and anti-drone: ‘Dear soldier of the Polish Army, [President] Nawrocki did not want to give you this.’” Key figures in the Tusk government hammered Nawrocki in the media and online following the decision, calling it “national treason.” The veto also defies the military, whose top brass have spoken out in favor of the SAFE loans. Chief of the General Staff Wiesław Kukuła in February described SAFE as a “game changer” for the military. PRESIDENT RAISES SPECTER OF “MASSIVE FOREIGN LOANS” In his speech, Nawrocki reiterated the arguments he has been rolling out against SAFE for weeks now, claiming the Security Action for Europe loans would saddle Poland with long-term debt and expose the country to exchange-rate risks.  “The SAFE mechanism is a massive foreign loan taken out for 45 years in a foreign currency, with interest costs that could reach as much as PLN180 billion [€42 billion]. Poland would therefore have to repay an amount roughly equal to the value of the loan itself in interest, with Western banks and financial institutions standing to profit from it,” Nawrocki said. The president also argued the scheme could allow Brussels to attach political conditions to Poland’s defense financing and would benefit foreign arms-makers disproportionately.  “SAFE is a mechanism under which Brussels, through the so-called conditionality principle, could arbitrarily suspend financing while Poland would still have to continue repaying the debt. That’s why it must be said clearly: Security subject to conditions is not security. Poland’s security cannot depend on decisions taken elsewhere,” Nawrocki declared. “I have decided that I will not sign the law that would allow Poland to take out a SAFE loan. I will never sign legislation that strikes at our sovereignty, independence, and economic and military security.” Instead, Nawrocki renewed his proposal for a domestic alternative to SAFE that would mobilize money to finance arms purchases without loans or interest payments — by involving the National Bank of Poland’s vast gold reserves. With 550 tons of gold stored in domestic and foreign vaults, the NBP is one of Europe’s top gold hoarders. Central bank chief Adam Glapiński said last week that the NBP holds around 197 billion złoty in “unrealized gains resulting from the increase in the value of the bank’s gold reserves,” and is considering using part of that to support defense spending. The operations would involve transferring the profits generated by the NBP to a dedicated vehicle, the Polish Defense Investment Fund. Glapiński also said the gains would be realized by transactions reducing the share of gold in the bank’s portfolio. 2027 ELECTIONS ON HORIZON Tusk and his ministers have lambasted the gold idea as highly speculative and said it was inconsistent with the central bank’s role as the guardian of Poland’s financial stability. The government has also said that nearly all of Poland’s SAFE money will go to domestic manufacturers, creating jobs and stimulating economic growth. The clash over SAFE comes as Poland prepares for a parliamentary election next year in which PiS hopes to defeat Tusk’s pro-EU coalition. Polls suggest that Tusk’s party, the liberal Civic Coalition, might come first but could lack the votes to form a majority.  The PiS, meanwhile, could secure a majority if it allies with the far-right Confederation party and with the even-more-extreme, antisemitic Confederation of the Polish Crown.

Banknotes issued by the Bank of England will soon feature images of wildlife rather than historical figures, following a public consultation on the design of the next set of currency. On the current crop of notes are former Prime Minister Sir Winston Churchill (£5), author Jane Austen (£10), painter J.M.W. Turner (£20), and mathematician and computer scientist Alan Turing (£50). The Bank of England held a public consultation on banknote imagery last year. In a press release, it said that of the 44,000 responses received, about 60 percent wanted nature to feature, ahead of architecture and landmarks, historical figures, arts, culture and sport, innovation and noteworthy milestones. The bank said it will hold a second public consultation in the summer to gather views on the kind of nature that people would like to see featured on the notes, with a shortlist to be drawn up by a panel of wildlife experts. England is home to a range of wildlife, including foxes, badgers, beavers, squirrels, otters, deer and seals. The new notes won’t enter circulation for several years. Victoria Cleland, chief cashier at the Bank of England, said: “The key driver for introducing a new banknote series is always to increase counterfeit resilience, but it also provides an opportunity to celebrate different aspects of the U.K.” “Nature is a great choice from a banknote authentication perspective, and means we can showcase the U.K.’s rich and varied wildlife on the next series of banknotes.” King Charles III will remain on the front of the notes. The highest note issued by the Bank of England is £50. Due to massive hyperinflation in 2008, the Reserve Bank of Zimbabwe issued a one-hundred-trillion-dollar banknote.

BRUSSELS — The right to use Swiss franc banknotes and coins will be enshrined in Switzerland’s constitution after voters on Sunday backed a measure designed to safeguard the use of cash in society. Preliminary official estimates revealed 69 percent of voters backed the legal amendment, which the government proposed as a counter to a similar initiative by a group called the Swiss Freedom Movement. The Swiss Freedom Movement triggered the national referendum after its initiative to protect cash collected more than 100,000 signatures, triggering a national referendum. Its initiative secured only 46 percent of the final vote after the government said some of the group’s proposed amendments went too far. The vote means Switzerland will join the likes of Hungary, Slovakia and Slovenia, which have already written the right to cold, hard cash in their constitutions. Austrian politicians are also debating whether to follow suit, as people’s payment habits become increasingly digital — especially since the pandemic. The trend has fanned Big Brother conspiracy theories that governments aim to control populations by withdrawing cash altogether. The European Central Bank’s plans to issue a virtual extension of the euro have fanned those fears, prompting the EU’s executive arm to propose a bill that will cement physical cash in societies across the bloc. Switzerland, too, has seen a drop in cash payments over the past decade. More than seven out of 10 payments at the till were in cash in 2017. In 2024, cash only featured in 30 percent of in-shop transactions, according to data from the Swiss National Bank. The Swiss Freedom Movement has previously pursued campaigns to sack unpopular government ministers, ban electronic voting, and protect citizens from professional or social retribution if they refuse to be vaccinated against Covid-19 — none of which made it to the ballot box.

LONDON — Western governments are being urged to clamp down on cryptocurrency as new research suggests $350 billion has been laundered by criminals and hostile states using the technology in the past two decades. A new report for the Henry Jackson Society think tank, shared with POLITICO, finds that worldwide money laundering has shifted dramatically towards cryptocurrency in recent years — with the United States, Russia and Britain seeing the highest number of confirmed cases. The report draws on a database of 164 publicly identified and documented money laundering cases between 2005 and 2025. It was compiled by Alexander Browder, son of American-British financier and anti-corruption campaigner Bill Browder. Alexander Browder said that the true figure could even be “many multiples” higher than the hundreds of billions that have been identified. The study also sheds light on lax enforcement of money laundering powered by crypto. It finds that 79 percent of cases have resulted in no convictions, while only 29 percent of funds have been recovered by authorities. The researchers, based in the U.K., call on the British government to set up a new Cryptocurrency Asset Recovery Office. This would hold recovered funds to transfer back to their rightful owners. Chris Coghlan, a member of the House of Commons Treasury Select Committee told POLITICO: “The sophistication and speed of crypto currency money launderers is much higher and faster than our government’s ability to react.  “As a result, our sanctions and law enforcement are in an increasingly weak position to stop it. This report highlights the need for a robust policy response to this pressing issue.” POLITICAL ISSUE Cryptocurrency is increasingly becoming a regulatory battleground in both the U.K. and the U.S. In America, President Donald Trump has come under fire for his ties to the industry. In April last year the U.S. disbanded a Department for Justice unit tasked with investigating crypto-related fraud. In Britain, Nigel Farage’s right-wing Reform UK became the first major British political party to accept crypto donations. The British government is considering a ban on political donations through crypto. But cryptocurrency exchanges will not be regulated by the country’s Financial Conduct Authority until 2027. Much of Britain’s concern about crypto comes from Russia’s recent embrace of the currency as an alternate means of financing its war economy following the invasion of Ukraine. Browder said Russia is now successfully evading sanctions using cryptocurrency — and that it is becoming a global epicenter for its illicit use. “Half of the illicit exchanges identified in the database have been based in Russia. Four out of five major ransomware groups in the database have been based in Russia.  “It is the home to crypto darknet marketplaces such as Hydra — one of the largest in the world, which had processed over $5 billion in illicit funds through the sale of harmful drugs and other illegal services,” he warned. Browder added that British, American and EU policymakers have so far been unable to tackle the problem: “Criminals and rogue regimes are basically running circles around U.K., U.S. and EU prosecutors.” “Criminals are able to escape without legal consequences, and victims are left without redress and adequate compensation.”

BERLIN — German Chancellor Friedrich Merz on Wednesday called for a reset in trade relations with China after meeting Chinese President Xi Jinping in Beijing, citing Germany’s soaring trade deficit with China. “I pointed out that we have had a considerable imbalance in the trade balance for about two years,” Merz said after his meeting with the Chinese leader. “We want to reduce these imbalances, which have arisen primarily from overcapacity in China.” Germany’s trade deficit with China hit €90 billion in 2025 and German business leaders are increasingly blaming what they view as unfair competition from China for the hemorrhaging of jobs in Germany’s manufacturing sector — now running at roughly 10,000 job losses per month. In advance of Merz’s trip, a growing number of German business leaders called on the chancellor to take a harder line on Chinese industrial policies that lead to price advantages for its companies — including subsidies, deliberate dumping and an undervalued currency. Merz seemed to respond to that pressure, calling on China to level the playing field. “Competition between companies must be fair,” he said. “We need transparency, we need reliability, and we also need compliance with jointly established rules.” He also said he aimed to reduce a trade deficit that has quadrupled since 2020. “This dynamic is unhealthy,” Merz said. “We are therefore addressing it and want to find ways to reduce this trade deficit.” At the same time, Merz hailed “the potential that still exists” in relations with China, saying that Chinese leaders had agreed to order up to 120 aircraft from Airbus. Merz is traveling with a delegation of some 30 executives and said other business deals are in the pipeline. Merz said he also asked Chinese leaders to “use their influence” to end Russia’s aggression in Ukraine, including by halting the export of dual-use goods that the Kremlin could use to wage war. “We also know that signals from China are taken very seriously in Moscow,” Merz said. “This applies to words as well as deeds.”

FRANKFURT — The head of Germany’s central bank has called for the EU to issue more joint debt, putting him at odds with Chancellor Friedrich Merz who wants to keep it strictly as a response to emergencies. “To make Europe attractive also means to attract investors from outside,” the German central bank governor, Joachim Nagel, told POLITICO ahead of an informal summit of EU leaders on Thursday to address the bloc’s economic challenges. “A more liquid European market when it comes to safe European assets would support that.” Eurozone central bankers — who have for the first time coalesced around support for joint debt — have sent EU leaders a wish-list of reforms to ensure that Europe’s economy can reform and keep pace with the U.S. and China. The European Central Bank’s policymakers, Nagel said in an interview on Friday, see “the benefits of creating a common European, highly liquid, euro-wide benchmark safe asset. Action is necessary.” But Nagel’s break from Germany’s traditional opposition to joint debt comes at an awkward time for Berlin. Earlier this week, the German government rebuked a rallying call from French President Emmanuel Macron to issue more eurobonds to boost certain sectors, such as artificial intelligence, European defense, semiconductors and robotics. The EU could also exploit U.S. President Donald Trump’s erratic foreign policy goals and lure global investors across the Atlantic. “The global market … is more and more afraid of the American greenback. It’s looking for alternatives. Let’s offer it European debt,” Macron told a group of reporters on Monday. Joint debt, known by the market shorthand of “eurobonds,” has long been a divisive topic. Since the sovereign debt crisis, southern European governments have pushed for eurobonds to spread the burden of national debt more evenly across the region. Frugal northern states, by contrast, have warned they risk undermining fiscal discipline — and have refused to put their taxpayers on the hook for debts racked up elsewhere. The Bundesbank has long been the de facto leader of the skeptics in northern and central Europe who believe eurobonds are best suited to isolated crises that require drastic action. These include an €800 billion post-pandemic recovery plan and a €90 billion loan to Ukraine to finance its defense against Russia. The last thing the so-called frugal bloc wants is for the EU to get into the habit of raising common debt to solve all of its issues. But times are fast changing. “Tradition is something that is a reflection of the reality of the past,” Nagel said when asked about the Bundesbank’s shift, stressing that Europe’s security has not been as threatened as today since World War II. “Now we have a different reality.” EUROBONDS, WITH LIMITS Support for joint debt does not mean the Bundesbank is dropping its commitment to ensuring sound fiscal policies. A European asset would only support “specific purposes,” and “how it is controlled by the European authorities and the Member States should be equally clear,” the 59-year-old said. Eurobonds must also be accompanied by debt reduction at the national level. “European debt is not a free lunch. And doubts about fiscal sustainability should not jeopardize the chances for improved common policies,” he said. Nagel stopped short of saying how much EU debt is needed to achieve real change. “I won’t give you a number,” he said, but added that “if you want to create something liquid, you have to give the markets an indication about the volume that you will supply over a certain period of time and for a certain purpose.” The central banker would not be drawn into whether Berlin might also adjust its views to reflect the new reality. “I see my role as giving advice on what could be a way out of a complicated situation that we are confronted with in Germany and in Europe,” he said. AUTONOMY, NOT SUPREMACY But a more efficient euro capital market is only one front in the battle to secure Europe’s economic independence and autonomy, Nagel said, adding that it will be equally important to ensure that the continent’s payment system can function independently from outside pressure. “Payment solutions, in an extreme scenario, could be weaponized,” he said.  Accordingly, he argued, the bloc needs to break the duopoly that U.S. credit card giants Mastercard and Visa hold over Europe’s payment rails across its borders. The key to payment security, he went on, is to mint a virtual extension of euro banknotes and coins that can settle transactions across the EU in seconds. The twin projects of the digital euro and perfecting the euro capital market may help boost Europe’s strength and autonomy, but still don’t amount to a masterplan to steal the dollar’s crown. And Nagel added that last week’s hint by the ECB about expanding its liquidity lines to central banks around the world, securing companies’ access to euros in times of stress, should not be seen as motivated by a political desire to boost the euro. “It is about monetary policy,” he said. Since last summer, Lagarde has urged Europe to seize a “global euro moment” as cracks began to appear in U.S. dollar dominance. While Nagel believes that “the euro could play here a significant role” as investors rebalance their portfolios to adjust to the new reality, he is not a fan of quick shifts. “I’m not in favor of fast tracking, jumping from one level to the next,” he said. “Often, such a development is not a very healthy one. I’m comfortable with gradual progress on the international role of the euro, as long as it’s moving in the right direction.”

President Donald Trump on Tuesday said he has no problem with the sharp decline in the dollar that’s been triggered by convulsions in global bond markets and growing skepticism about the U.S.’s reliability as a trading partner. “I think it’s great,” Trump told reporters in Iowa when asked about the currency’s decline. “Look at the business we’re doing. The dollar’s doing great.” Trump has long maintained that a weaker currency helps industries that he’s seeking to boost — particularly manufacturers, but also oil and gas. And U.S. corporations that export goods and services abroad typically report stronger earnings when they can convert foreign payments into a weaker greenback. But a soft dollar also diminishes the purchasing power of U.S. businesses and consumers and can lead to higher inflation. That’s one reason why Treasury officials, including Secretary Scott Bessent, have historically advocated for a stronger dollar. Some of Trump’s other advisers — including Fed Gov. Stephen Miran, who’s on leave from his role as the president’s top economic adviser — argue that the dollar’s strength in recent years has placed domestic businesses at a competitive disadvantage to overseas-based companies. The greenback was trading at its lowest level in nearly four years before Trump weighed in on its recent declines. After the president’s remarks, its value sank even further against a basket of foreign currencies. Trump’s foreign policy agenda and repeated tariff threats — including his push to acquire Greenland — have amplified a “sell America” narrative that has hurt the dollar and other U.S. asset prices. A possible intervention to prop up the value of the Japanese yen has also pushed down the dollar over the last week.

The Trump administration is weighing new tactics to drive regime change in Cuba, including imposing a total blockade on oil imports to the Caribbean country, three people familiar with the plan said Thursday. That escalation has been sought by some critics of the Cuban government in the administration and backed by Secretary of State Marco Rubio, according to two of the three people, who were granted anonymity to discuss the sensitive discussions. No decision has been made on whether to approve that move, but it could be among the suite of possible actions presented to President Donald Trump to force the end of Cuba’s communist government, these people added. Preventing shipments of crude oil to the island would be a step-up from Trump’s statement last week that the U.S. would halt Cuba’s imports of oil from Venezuela, which had been its main crude supplier. But there are ongoing debates within the administration about whether it is even necessary to go that far, according to all three people. The loss of Venezuelan oil shipments — and the resale of some of those cargoes that Havana used to obtain foreign currency — has already throttled Cuba’s laggard economy. A total blockade of oil imports into Cuba could then spark a humanitarian crisis, a possibility that has led some in the administration to push back against it. The discussions, however, show the extent to which people inside the Trump administration are considering deposing leaders in Latin America they view as adversaries. “Energy is the chokehold to kill the regime,” said one person familiar with the plan who was granted anonymity to describe the private discussions. Deposing the country’s communist government – in power since the Cuban revolution in 1959 – is “100 percent a 2026 event” in the administration’s eyes, this person added. The effort would be justified under the 1994 LIBERTAD Act, better known as the Helms-Burton Act, this person added. That law codifies the U.S. embargo on Cuban trade and financial transactions. Cuba’s embassy in Washington did not respond to a request for comment. A White House spokesperson did not address a question on whether the administration was considering blocking all oil imports into Cuba. Cuba imports about 60 percent of its oil supply, according to the International Energy Agency. It was heavily dependent on Venezuela for those imports until the Trump administration started seizing sanctioned shipments from that country. Mexico has more recently become the main supplier as Venezuelan crude shipments have dried up. Mexico, however, charges Cuba for imported oil and its shipments are not expected to fully ameliorate Cuba’s worsening energy shortage. Since the U.S. operation that captured Venezuelan leader Nicolás Maduro, the administration has turned its attention on Cuba, arguing that the island’s economy is at its weakest point, making it ripe for regime change soon. Trump and Secretary of State Marco Rubio, the son of Cuban immigrants, have each voiced their optimism that the island’s communist government will fall in short time given the loss of Venezuela’s economic support. Toppling the communist regime in Cuba would fulfill a nearly seven-decade political project for Cuban exiles in Miami, who have pushed for democracy on the island since Fidel Castro took power after ousting the dictatorship of Fulgencio Batista in 1959. Rubio has long been an advocate for tough measures against Havana in the hopes of securing the fall of the regime. Conditions on the island have indeed worsened, triggering blackouts and shortages of basic goods and food products. But the regime has weathered harsh U.S. sanctions — and the sweeping trade embargo — for decades and survived the fall of the Soviet Union after the Cold War. Meanwhile, concerns remain that the sudden collapse of the Cuban government would trigger a regional migration crisis and destabilize the Caribbean. Critics of the Cuban government will likely celebrate the proposal if implemented by the White House. Hawkish Republicans had already embraced the idea of completely blocking Cuba’s access to oil. “There should be not a dime, no petroleum. Nothing should ever get to Cuba,” said Sen. Rick Scott (R-Fla.) in a brief interview last week.