While President Donald Trump’s trade war has tied the Federal Reserve’s hands, it is pushing central banks in Europe to support their economies by lowering interest rates.

Following moves last month by the European Central Bank (ECB) and the Bank of England (BoE), the central banks of Switzerland, Sweden, and Norway cut their official interest rates this week.

All five central banks have lowered their growth forecasts in recent weeks. The common theme is that uncertainty about the future of trade, following Trump’s “Liberation Day” tariff announcement on April 2, has damaged confidence and suppressed economic activity.

In contrast, the Fed is not considering an interest rate cut this year, even though the same factors are negatively affecting the US economy. The reason is that the scope and scale of Trump’s tariffs are almost certain to raise inflation in the US.

“Everyone I know is forecasting a significant bump in inflation in the coming months because of the tariffs, because someone has to pay for them,” Fed Chair Jerome Powell told reporters on Wednesday after the US central bank left its federal funds rate target range at 4.25% to 4.50%.

At the meeting, Fed policymakers revised their inflation forecasts for 2025 and 2026 upward, signaling that interest rates will need to remain higher for slightly longer as a result.

“Our job is to keep long-term inflation expectations stable and prevent a one-time increase in the price level from turning into a persistent inflation problem,” Powell said.

In this context, Powell emphasized that the US economy is still growing at a reasonable pace, while unemployment, at just 4.2% of the labor force, is low enough for the Fed to wait a little longer before acting.

The Fed’s cautious stance has angered Trump, who has called Powell a “fool” and said this week that he “might have to force things” if a move is not made soon.

“Obviously, we have a fool at the Fed,” he told reporters in front of the White House before the Fed’s decisions on Wednesday. “There is no inflation. There is only success. I want interest rates to come down.”

On the other side of the Atlantic, the situation is very different. The initial impact of the tariffs was felt in Europe’s export sector. Companies that rushed to ship their products to the US before the tariffs took effect now face a long wait for new orders.

While central banks are still concerned that the trade war could disrupt global supply chains and introduce additional costs that would increase inflation at some stage, that concern has been set aside for now.

“The economic recovery that began last year has lost momentum,” Sweden’s Riksbank said on Wednesday, cutting its interest rate by a quarter point to 2%.

“After a strong first quarter, growth will slow again and remain quite weak for the rest of the year,” the Swiss National Bank said on Thursday morning, lowering its interest rate from 0.25% to zero.

In Norway, where the central bank had resisted cutting rates despite the post-pandemic inflation surge, it announced that the time had finally come to change its stance. Norges Bank also indicated it would cut rates again later in the year.

The BoE left its bank rate unchanged on Thursday, but it had cut rates in May, and Governor Andrew Bailey stated, “Interest rates are continuing on a gradual downward trend.”

The ECB also made its eighth interest rate cut of the past year at the beginning of June, and analysts predict that both central banks will continue to cut rates in the coming months.

As growth slows, inflation is also falling below the level desired by central banks, at least in the short term. The ECB forecasts that inflation will be 1.6% next year before returning to its 2.0% target in 2027.

In Switzerland, inflation turned negative on a year-over-year basis in May, at -0.1%.

The reason for this is largely the shaken confidence in the dollar due to Trump’s policies. The dollar has lost about 9% of its value this year against major Western currencies such as the euro, sterling, and the Swiss franc.

This has caused the prices of many of Europe’s imports, particularly commodities priced in dollars like oil and coffee, to become significantly cheaper in local currency terms.

“Because of the erratic and chaotic new policy style in the US, we have seen European currencies strengthen,” said ING economist Carsten Brzeski, describing them as “a significant driver of deflationary pressures in Europe.”

Indeed, Switzerland’s interest rate cut on Thursday was directly aimed at reducing the appeal of the franc, which global investors see as a “safe haven.”

“We will not take the decision for negative interest rates lightly,” SNB President Martin Schlegel said at a press conference, while acknowledging that he might have to lower the main interest rate below zero again.

The narrative that Russia will continue to ‘invade’ European countries after Ukraine has become a key factor shaping European politics. Despite the rise of ‘anti-West/NATO/EU’ forces across the continent and the prospect of a Donald Trump administration in the US pursuing a fluctuating peace with Russia, ‘mainstream politics’ in Europe is forging ahead with war preparations. As part of these efforts, the Baltic states have made a new move.

Lithuania, Latvia, and Estonia have decided to jointly coordinate their mass evacuation plans to ‘ensure the safety of the civilian population in the face of increasing threats from Russia.’ With a memorandum signed at an official ceremony in Vilnius on June 13, the interior ministers of the three countries launched a comprehensive cooperation initiative aimed at ensuring coordination during cross-border evacuations and accelerating information sharing.

Lithuanian Minister of the Interior Vladislav Kondratovic, described the plan, stating, “Clear procedures and a rapid flow of information are of vital importance. This will allow us to prevent panic before and during a crisis and to implement measures quickly.” She argued that this collaboration would play a critical role, especially in ‘large-scale evacuations.’

What’s in the evacuation plan?

The three countries will share information such as their evacuation capacities, potential evacuation corridors, and the status of border crossings. This information will be used to ensure the safe and swift transport of the public. It was also emphasized that vulnerable groups such as the disabled, the elderly, children, and others will be given special priority during evacuation processes.

The main objective of the agreement was explained in the official statement as follows:

“The main purpose of this memorandum is to strengthen regional cooperation among the Baltic states for mass evacuations, prepare joint evacuation plans, and find solutions to common challenges through rapid information sharing.”

Currently, the signed memorandum has no declared budget; no expenditure figures are mentioned in official sources. However, looking at recent years—for example, Lithuania alone allocated approximately €285 million for its mass evacuation infrastructure in 2024—can provide an idea of the budget’s potential scale.

This step by the Baltic states is not the first, nor will it be the last. Previously, serious war preparation plans have been made, ranging from distributing war preparedness brochures to the public to calculating the capacity of cemeteries in the countries.

In addition, at the end of last month, the ministers responsible for interior affairs and civil defense from Belgium, Estonia, Latvia, Lithuania, Luxembourg, the Netherlands, Finland, and Sweden met in Brussels and called for strengthening Europe’s civil defense capabilities.

The call emphasized that “not only the military but also internal security must be prepared, to ensure stability and build resilience against various crises.”

Before Zapad 2025

This decision by the Baltic states comes ahead of the joint Russia-Belarus military exercise named “Zapad 2025,” scheduled to be held in Belarus in September. These exercises, jointly organized by Moscow and Minsk, are consistently viewed by the West as a ‘rehearsal for a new attack.’

Meanwhile, Belarus has announced that the scale of the exercises will be significantly reduced and relocated. Although this decision is claimed to have been made to avoid escalating tensions with NATO, it appears this move is not enough to de-escalate the situation.

The health sector is also preparing for war

Military restructuring initiatives and widespread war preparation propaganda in Europe are being followed by preparations in the healthcare system against ‘attacks from Russia.’

In Lithuania, some hospitals are taking precautions against power and water outages and building helicopter pads, while in Estonia, ambulance crews are being supplied with bulletproof vests and satellite phones.

As evacuation plans are being discussed, Politico published another noteworthy report on Eastern Europe’s war preparations.

The article, titled ‘Europe’s border countries are readying their hospitals for war’ and written by Giedre Peseckyte, reports that countries like Lithuania, Latvia, Estonia, and Poland are mobilizing their healthcare infrastructures for ‘crisis scenarios.’

The statements from individuals Peseckyte interviewed in the report contain striking indicators of how politics and society in Europe are shifting into a war footing:

Ragnar Vaiknemets, Deputy Director General of the Estonian Health Board: “We have bad neighbors here: Russia and Belarus. It’s no longer a question of ‘if’ they will attack, but ‘when.’”

Katarzyna Kacperczyk, Polish Deputy Minister of Health: “For frontline countries, preparation is no longer a choice; it is a necessity.”

Bjørn Guldvog, Director of the Norwegian Directorate of Health: “Wartime needs can be three to five times higher than normal.”

Rūdolfs Vilde, a doctor at Pauls Stradiņš Clinical University Hospital in Riga: “Most doctors who are parents do not want to leave their children behind to work in a war.”

Agnese Vaļuliene, State Secretary of the Latvian Ministry of Health: “We have to prepare for the worst. But we hope it never happens.”

However, the countries that would first face a ‘potential Russian attack’ are quite inadequate in terms of military and healthcare capacity. Estonia has half the number of healthcare workers per capita compared to Germany. Whether the staff would remain in the country in the event of a war is uncertain. In a survey conducted in Lithuania, 25% of healthcare personnel stated they would flee in a war, while 33% were undecided.

While Europe has an average of 11.5 ICU [Intensive Care Unit] beds per 100,000 people, this number is insufficient for wartime conditions. Most hospitals are only equipped to operate at 150% capacity for 24-48 hours. Despite this, many hospitals in Eastern Europe are planning to convert their basements into operating theaters.

Civilian participation comes to the forefront

Alongside war preparations and evacuation plans, the Baltic states plan to conduct numerous exercises this year. The prominent features of these exercises are the emphasis on ‘civil defense’ topics such as casualty evacuation and emergency response.

The reality revealed by this entire picture is this: The Baltic states do not believe their armed forces will be sufficient in a war with Russia, and therefore, a new type of civil-military mobilization is being constructed, in which the public is also pushed directly to the front lines. In such a situation, if Russia were to actually attack these countries, how will the distinction between civilian and military casualties be calculated? The answer to this question is not yet clear.

The Baltic region, as Europe’s eastern border, has been led to believe it will be the first target of war. According to the leaders of these countries, preparing for a potential Russian attack is no longer just the duty of the military, but of the entire society—civilians, doctors, nurses, firefighters, and hospitals.

The Baltic states are acting based on an abstract threat scenario centered on a ‘Russian attack.’ The idea that Russia will attack the Baltic states after Ukraine is, for now, nothing more than a prophecy. However, the increasing NATO military presence in the region could turn this scenario into a ‘self-fulfilling prophecy.’

Sources

https://www.politico.eu/article/baltics-cross-border-evacuation-russia-lithuania-latvia-estonia-ukraine-military-eu/

https://www.politico.eu/article/eastern-europe-baltics-hospitals-wartime-preparation-health-care-russia-ukraine/

https://vrm.lrv.lt/lt/naujienos/baltijos-saliu-vidaus-reikalu-ministrai-stiprina-bendradarbiavima-civilines-saugos-srityje/

https://tvpworld.com/87266026/baltic-states-sign-pact-for-joint-evacuation-strategy

Not all EU member states agree that Israel’s recent strike on Iran was in accordance with international law. These divisions were highlighted by ambassadors who met in Brussels on Thursday ahead of next week’s summit.

According to sources from Euronews, disagreements over the justification for Israel’s attack on Iran last Friday have surfaced among ambassadors in Brussels, hindering the EU’s efforts to formulate a unified response to the crisis.

“This is definitely a topic of discussion,” one source said. “The extent to which the right to self-defense is acceptable is being debated.”

In a statement on Saturday, the EU had called on “all parties to respect international law, show restraint, and avoid actions that could lead to severe consequences, such as a potential radioactive leak.”

No agreement on “Israel’s right to self-defense”

Sources close to the discussions revealed that a significant portion of the negotiations among member states focused on whether the EU should use the phrase “Israel has the right to self-defense” in the context of its strikes against Iran.

Approximately 15 member states, including Austria, the Czech Republic, France, Germany, Hungary, Italy, and the Netherlands, pushed for the inclusion of this phrase, but unanimity could not be reached.

Other countries believe there is insufficient evidence to support the claim that Israel has the right to launch an attack against Iran under international law. According to international law and the UN Charter, a state may exercise its right to self-defense in the event of an armed attack or the threat of one, and any necessary measures must be proportional.

Israel has stated that it conducted a series of preemptive strikes to prevent Iran from acquiring nuclear weapons.

A draft of the summit conclusions seen by Euronews contains no statement on the European Council’s position regarding the Israel-Iran conflict.

Von der Leyen’s stance surprises some countries

Meanwhile, EU sources told Euronews they were “surprised” by Commission President Ursula von der Leyen’s tweet, which seemed to offer tacit support for Israel’s attacks on Tehran.

Her message went further than the agreed-upon statement from the European Council, the EU body responsible for conducting foreign policy.

“I spoke with President Herzog about the escalating situation in the Middle East,” Ursula von der Leyen tweeted. “I reiterated Israel’s right to defend itself and protect its people.”

Another diplomatic source speaking to Euronews noted, “There was no consensus that Israel has the right to self-defense, but von der Leyen said it anyway. She saw the agreed-upon text and then made her own statement. Frankly, it was very disappointing.”

The same source argued that countries like Iran, “no matter how bad they are,” will not “simply bow down” when attacked in this manner. They also warned that even if there were a regime change in Iran, what follows could be “much worse.”

“And then, when two or three million Iranians show up at Europe’s doorstep, they will say we cannot handle this migration crisis,” the source added.

Another diplomat mentioned that member states critical of Israel believe its strikes on Iran were irresponsible, although a large group agreed with von der Leyen’s statement.

Kaja Kallas calls for de-escalation

When asked whether their governments considered the conflict against Iran to be within the provisions of international law, the diplomat replied, “That is a legal question; there is no decision yet.”

Mohamed ElBaradei, former head of the International Atomic Energy Agency (IAEA), stated in a post on X that Israel’s “suspicions do not constitute an imminent threat” and that its attack on nuclear facilities was illegal under international law.

Meanwhile, Kaja Kallas, the EU’s High Representative for Foreign Affairs, reiterated the EU’s official position in favor of a diplomatic resolution to the Israel-Iran conflict. Calling on all parties to “respect international law and de-escalate,” Kallas also wrote on Twitter on Wednesday, “Israel has the right to defend itself in accordance with international law.”

Three major European powers to meet with Iran

The three major European powers—Germany, France, and the United Kingdom—announced they will hold a meeting with Iranian Foreign Minister Abbas Araghchi in Geneva today (June 20).

Among the three major Western European powers, Germany has been the most vocal in its support for Israel, stating that the offensive against Iran falls under the “right to self-defense.” Chancellor Merz even said that in the war, which has claimed over 500 lives as of yesterday, Israel is “doing all of our dirty work.”

Merz rejects all claims that the invasion is a clear violation of international law. In an interview at the G7 summit in Kananaskis, Canada, on Tuesday, he expressed “great respect for the Israeli army” and “respect for the Israeli leadership that showed the courage to do this.”

Berlin’s position aligns with that of the US and Israel. In fact, Israel’s Ambassador to Germany, Ron Prosor, openly defended the words used by Merz (“dirty work”), stating that the chancellor “clearly expressed the realities in the Middle East with his choice of words.”

While the EU remains divided, French President Emmanuel Macron continues his efforts to persuade Iran to sign a new nuclear deal. French Foreign Minister Jean-Noël Barrot has scheduled a meeting in Geneva today. The meeting will be attended by Johann Wadephul from Germany and David Lammy from the UK, as well as Iranian Foreign Minister Abbas Araghchi. EU High Representative Kaja Kallas has also been invited.

Merz allegedly urged Netanyahu to “soften attacks”

According to a Reuters report, Chancellor Friedrich Merz held a phone call with Israeli Prime Minister Benjamin Netanyahu, urging “restraint” in Israel’s military campaign against Iran.

The source indicated that during the call on Wednesday evening, Merz stated that Germany supports Israel’s military strikes on Iran’s nuclear infrastructure in principle but emphasized the importance of finding a diplomatic solution to the conflict.

Sources also reported that Merz and Netanyahu discussed the situation in Gaza during the phone call. The German government has called on Israel to adhere to “international law” in its war in Gaza, where tens of thousands of civilians have been killed and aid restrictions have exacerbated the humanitarian crisis.

In a separate conversation, Merz agreed with the Emir of Qatar that the conflict should not spread to the wider region, pointing to the Geneva talks in this context.

Trump’s hesitation could open a window for Europe

Some believe that US President Donald Trump’s ambivalent stance on a US attack on Iran could work to Europe’s advantage.

“Something is holding Trump back,” a European diplomat told POLITICO.

The diplomat pointed out that although Trump has said the US is ready to join Israel’s military strikes, nothing has happened so far. “There is an opportunity here,” the diplomat said, adding, “We should not underestimate how much Trump hates war.”

John Sawers, former head of Britain’s foreign intelligence service, MI6, said Trump would prefer that Israel not initiate a direct war with Iran.

“Here was an opportunity that Trump really didn’t want,” Sawers said at a conference hosted by the Chatham House think tank in London.

“Just a week ago, he had called on Israel to give more time for negotiations, but Netanyahu refused, and Trump basically went along with Israel’s approach,” Sawers said. He added that Israel has now put the world in a situation that “enrages Iran,” and it would be better for the US to step in to finish the job.

However, other well-connected officials and diplomats in the E3 do not share this view, fearing that direct US involvement could escalate the conflict into a full-scale regional war.

According to an official from one of the E3 countries, the goal of restarting negotiations with Iran was to secure a guarantee that Tehran would use its nuclear program for civilian purposes only. “The negotiations were at that exact point… but they were derailed by Israel’s actions,” the official said.