As fresh talk of a U.S.-Europe trade war intensified on Tuesday, IMF Managing Director Kristalina Georgieva issued a stark warning to European leaders: “Get your act together.”
U.S. President Donald Trump announced on Saturday that eight European allies would face increasing tariffs, starting at 10% on Feb. 1 and rising to 25% on June 1, if a deal is not reached that allows Washington to “buy” Greenland, a semi-autonomous territory that’s part of Denmark.
The proposed tariffs would target Denmark, Norway, Sweden, France, Germany, the U.K., the Netherlands, and Finland, Trump said. European leaders have hit back against the tariffs and have called for more dialogue with the U.S.
On Tuesday, Trump also threatened to slap 200% tariffs on French wine and champagne after France’s President Emmanuel Macron was reported to be unwilling to join his “Board of Peace” on Gaza.
Speaking to CNBC’s Steve Sedgwick and Karen Tso at the World Economic Forum’s flagship conference in Davos, Switzerland, Georgieva urged policymakers to take a pragmatic approach to applying country-specific tariffs — but conceded that Europe is not using its economic might to win leverage on the global geopolitical stage.
“We are on [the] record multiple times appealing to the Europeans to complete the single market, to concentrate on their domestic competitiveness,” she said. “Europe has fallen behind in productivity. Europe has fallen behind in getting small companies to grow to giants, and that has to change.”
She argued that there are four things European leaders must do to fulfil the continent’s economic potential: finalize the capital markets union, complete the energy union, make it easier for employers to secure labor from across the EU, and invest in research and innovation.
“Make European money work for Europe right now, 300 billion euros ($351.75 billion) of European savings are in the United States,” Georgieva told CNBC. “It is [also] impossible to compete with 27 different energy systems, [and] you cross the border from Germany to France, you can’t work there.”
“They know [they need to do] it, but they’re kind of slow in the doing,” she added of the continent’s policymakers. “Europeans, if you’re watching, get your act together.”
‘A new independent Europe’
European leaders have described Trump’s fresh tariff threats as “unacceptable,” and are reportedly considering countermeasures — with France said to be pushing for the European Union to use its strongest economic counter-threat, known as the “Anti-Coercion Instrument.”
Europe can no longer rely on the old world order and must become independent as geopolitical shocks continue, European Commission President Ursula von der Leyen said on Tuesday.
“If this change is permanent, then Europe must change permanently too,” she told the forum in a keynote address on Tuesday.
She said it was easy to be nostalgic about the old world order but that this was unhelpful, noting: “It is time to seize this opportunity and build a new independent Europe,” she said.
“This new Europe is already emerging,” she said.
Trump said on Tuesday morning that he had agreed to meet with European officials in Davos to discuss his Greenland ambitions.
On Monday, the IMF slightly upgraded its projections for the global economy, saying it expects global growth to reach 3.3% this year and 3.2% in 2027.
“One of the factors for the upgrade is that the impact of tariffs was muted. There was no tit for tat trade war, and it would be very good if we keep it this way,” Georgieva told CNBC on Tuesday. “It would be good for the world economy. It would be good for individual countries.”
Noting that countries were now likely to be calibrating the costs and the benefits of action on trade instruments, Georgieva urged officials and market watchers to “keep a calm attitude.”
“Last year, many … got very excited about tariffs, and many were projecting recession,” she said. “It did not happen. Why didn’t [it] happen? Because economic rationale took over.”
— CNBC’s Holly Ellyatt contributed to this report.