Donald Trump’s protectionist policies will likely increase eurozone borrowing costs and further damage the bloc’s anaemic economy, the head of the eurozone’s financial rescue fund warned.

Pierre Gramegna, managing director of the European Stability Mechanism (ESM), made the comments amid growing fears that Trump’s proposed policy cocktail of high tariffs, corporate tax cuts, and mass deportations will cause US inflation to soar, forcing the US Federal Reserve to maintain interest rates at an elevated level.

Analysts say this could potentially lead to higher borrowing costs for euro-area countries, many of which, like France and Italy, are already highly indebted.

Speaking just minutes after Donald Trump’s second presidential inauguration on Monday, Gramegna said that rising global borrowing costs indicate that investors are already pricing in the economic impact of Trump’s “America First” policies.

He told reporters that the US administration’s anticipated policy changes may negatively affect Europe’s economic growth.

Gramegna added that rising government bond yields could weigh on growth going forward, while renewed inflationary risks and Washington’s soaring budget deficit risk pushing bond yields to a higher level.

Speaking alongside Gramegna – whose ESM was established during last decade’s sovereign debt crisis to ensure euro area financial stability – Eurogroup President Paschal Donohoe expressed confidence that member states remain committed to fiscal rectitude.

Donohoe noted that most EU countries have submitted budget plans that comply with the EU’s stringent fiscal rules, which is “an essential signal [showing] that Europe has a credible medium-term budget framework.”

Underscoring European fears of an imminent increase in US protectionism, Trump pledged in his inauguration speech to “tariff and tax foreign countries to enrich our citizens”—although, in sharp contrast to recent pronouncements, he stopped short of naming any specific countries that would be hit with duties.

When asked about Trump’s comments, Commissioner for Economy Valdis Dombrovskis said that the EU and the US currently enjoy the largest investment and trade relationship in the world and “need to work together, especially in this turbulent geopolitical context.”

However, he warned that Brussels stands “ready” to “defend Europe’s economic interests”, noting that during Trump’s first term, the Commission imposed “rebalancing” duties on US exports after Washington introduced tariffs on EU steel and aluminium.

[ATB]