##economic impact of higher trade tariffs treats it as a negative supply shock involving a trade - off between lower output and higher prices, at least in the short run. studies that use this rather mechanical approach tend to find significant but still relatively limited effects. the imf, for example, has examined the fairly severe scenario of a global rise in tariffs that causes a 10 % increase in import prices but conclude that this would only lead to a 15 % fall in global trade and a drop of around 2 % in world gdp after 3 years. page 4 sur 5 this type of analysis, in my view, seriously underestimates the possible effects because it ignores the shock to confidence through two channels. firstly, uncertainty can increase risk aversion in financial markets and reduce the supply of credit. second, a loss of business confidence can deter investment. both uncertainty channels would tend to depress demand. what ’ s more, they can be front - loaded and occur before any trade restrictions come into effect. indeed the damage can be done even if no additional trade restrictions are actually imposed. a good example of outcomes before the facts is brexit. for the time being, the uk has conducted a referendum and triggered article 50 but doesn ’ t leave the european union until march next year : there are no tariff or trade barriers. yet the pound fell immediately after the referendum result in anticipation of more difficult external trading conditions in the future ; this has substantially hurt the purchasing power of uk households. business investment slowed down – as apparently it has in canada due to nafta uncertainty. the bank of england estimates that uk real gdp is already 1¾ - 2 % lower than it otherwise would be as a result of brexit. fiscal policy uncertainty about fiscal policy in many advanced economies is a second source of policyinduced uncertainty. public debt has risen significantly since the great recession. average gross government debt in the euro area rose from around 65 % of gdp in 2007 to peak at over 90 % in 2014 and is currently still over 85 %, despite the fact that primary balances have improved on average across the euro area. the macroeconomic costs of fiscal uncertainty can be felt even without an actual sovereign debt crisis. risk premia increase and raise the cost of borrowing but without any riskadjusted increase in return for savers. the risks of fiscal uncertainty are highly non - linear and one could almost say binary due to the reaction function of financial markets, as we have seen since 2010 in the euro

a slowdown in underlying economic growth? the governing council judged that it was largely a moderation from the exceptionally strong growth of q4 compounded by some temporary and supply - side factors at both the domestic and the global level, as well as weaker impetus from external trade. page 2 sur 5 the euro - system staff projections of economic growth of 2. 1 % in 2018, 1. 9 % in 2019 and 1. 7 % in 2020 remains consistent with an ongoing solid and broad - based recovery ; the french economy, which is sometimes considered to be a good proxy for the euro - area average, is likely to follow a similar growth path with 1. 8 %, 1. 7 % and 1. 6 % in 2020 according to the banque de france. on the inflation outlook, as part of the sapi criteria, recent ecb and euro - system staff projections have become more and more stable giving us increasing confidence that the improving economic growth we have seen will translate into rising wage and price inflation. in other words, whilst we might be a bit less certain precisely where we are in the cycle, we are more confident that we are heading in the right direction on inflation. monetary policy decisions when would the governing council end the net asset purchases? when would it announce this decision? these were questions left hanging and the subject of market speculation before our meeting in riga. besides the famous and important three “ ps ” – perseverance, patience and prudence - the governing council ’ s decisions were also guided by three “ cs ” : credibility, consistency and clarity. each element is important. credibility : our actions are credible because they stick to our mandate and our economic forecasts, in particular with respect to the inflation outlook. and we were obviously wise not to change the inflation target of 2 % over recent years despite many different calls to do so. consistency : we acted consistently with what we have previously said as was the case in our previous packages of december 2016 and october 2017. this consistency helped to have, at least since march, an “ alignment of the planets ” between the governing council ’ s views and those of outside forecasters, including market expectations. it was important that we announce the end of the net asset purchases as soon as we felt the sapi criteria would be met. clarity : uncertainty is today the number one enemy of growth and financial stability. by providing clear guidance on the path of asset purchases and interest rates – once more several months in advance - we have done