US-China trade war and crumbling Italian economy sparks fears of new Euro crisis

A SENIOR government adviser has warned of a European financial crisis, as the US-China trade war slows German manufacturing and Italy crumbles with debt.

Ongoing tensions between the world's two largest economies are having a prolific effect on the EU, where tariffs imposed by Trump are slowing demand for German products like cars and reducing the country's profits.

Germany's economic expansion is predicted to be just 0.5% this year, down from 1.8% a few months ago – a massive decrease likely caused by the 25 per cent tariffs Trump slapped on on steel and aluminium imports from the EU.

The tariffs imposed by Trump are part of his “America First” campaign policy to revive US metal industries and reduce the country’s trade deficit.

He reportedly told the French president Emmanuel Macron that he wants to keep the tariffs in place until German cars are eradicated from the US.

Now, Dr. Lars Feld, of the German Council of Economic Experts, has warned of a slowdown in Europe's economy, citing the above figures and Germany's financial situation.

Speaking to the BBC, he said Trump's tariffs in combination with Italy's crumbling financial economy have the potential to plunge Europe into a new financial crisis.


The German car manufacturing industry has taken a few hits over the past year that have affected sales and brought profits down.

Aside from Trump's tough tariffs, new emissions standards for air pollution affected the industry's ability to manufacture its cars.

Last summer, a drought in Germany also caused severe disruption to the transport of goods on the Rhine.

Manufacturing accounts for about one fifth of Germany's annual income, so any drop in the industry has the potential to cause significant damage to the country's financial health.

Since the US-China trade war began, there has been far less demand from China for German products like cars .

And the country is struggling to keep up in the face of global manufacturing competition.

The issues affecting Germany and Italy recently prompted the European Commission to reduce its forecast for growth across the EU to 1.4% this year – just a touch above what it expects for the UK.

Last week, a single tweet from President Trump about the US-China trade wars knocked £1.5 trillion off the global markets.

He threatened to double the tough tariffs already imposed on China, part of a spate of tariffs and laws the president has been imposing on countries around the world.


Dr. Feld also said that Italy is struggling to stay out of recession while grappling with a banking crisis and high government debt.

Reckless spending by the Italian government has placed it in over £2 trillion worth of debt – a figure that means they are close to breaching rules set by the European Commission.

Dr. Feld says that Italy's crumbling financial economy has the potential to plunge Europe into a new financial crisis.

He said: "The banking system in Italy is not as safe as we might hope for.

"There is the potential for contagion, in particular, from the Italian banking system to other banking systems.

"This might look like a new euro crisis."

Several Italian leaders have needed to be "bailed out" over the past three years.

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