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Tariffs 2.0

Equity markets have largely shrugged off President Trump’s renewed tariff threats so far, geopolitical tensions are easing, for now, and the AI led growth rally is powering ahead. Yet macro risks linger. 
 
Recession risk in Europe persists, and high public debt levels across several economies raise long-term fiscal concerns. 
 
A major concern is the potential escalation of trade tensions if the US moves forward with its proposed 30% tariff on EU goods from 1st August. Should the EU retaliate, the resulting trade dispute could push inflation higher, possibly prompting further interest rate hikes by major central banks. German Chancellor Friedrich Merz cautioned that the tariffs would “hit exporters at their core". 
 
The European Central Bank (ECB) has cut rates eight times in the latest monetary easing cycle. Capital Economics forecast that the base rate will reach 1.75 by year end. As things stand that will make debt in Europe significantly cheaper than in the UK or the US, offering support to mortgage holders and potentially bolstering housing demand across the region but the next round of tariff negotiations could alter that trajectory.

Central Banks diverging paths

Portugal

Less than two months after Spain officially ended its golden visa programme over concerns about housing market pressures, Portugal is considering a different approach - potentially enhancing its own residency scheme and tax incentives for expatriates.

Minister of the Presidency, António Leitão Amaro, part of the centre-right Democratic Alliance Government, stated in a recent interview that is exploring measures aimed at strengthening Portugal’s appeal to foreign investors and attracting global talent. While he stopped short of disclosing specific proposals, Amaro emphasised that the objective is to reinforce Portugal’s positioning as a leading investment destination.

Portugal’s golden visa programme, one of the most sought-after in Europe, currently offers non-EU nationals a pathway to residency through qualifying investments, including a minimum €500,000 in eligible funds. 

New residents may also benefit from favourable tax treatment, such as a 20% flat rate on Portuguese-sourced income and a ten-year exemption on most foreign income.

The latest data from SEF, the Portuguese Agency for Integration, Migration, and Asylum, reveals that the number of golden visas issued in 2024 reached 5,000, the highest annual total since the programme began in 2012.

 
These latest developments in Portugal will not be welcomed by the European Commission, which has previously voiced concerns over golden visa schemes and exerted pressure on some member states to make them less appealing to non-EU residents.

In recent years, several EU member states, including Spain, Malta, Ireland, the Netherlands, and Greece, have either discontinued or significantly tightened their residency-by-investment programmes.

Wealth taxes

Calls to introduce a , most recently advocated by Lord Kinnock, are gaining renewed attention amid fiscal pressures and Labour’s search for revenue options. Europe would likely be a beneficiary of any such move. However, such a tax remains unlikely in the near term, with the government short on time to make such a move ahead of the Autumn Budget.

Proposals under discussion centre on an annual 2% levy on assets exceeding £10 million, which advocates claim could raise up to £24 billion, but it faces substantial political and practical hurdles, including administrative complexity, challenges in valuing diverse assets, and risks of capital flight. 

International experience shows that of the with wealth taxes in the 1990s, only Switzerland, Norway, and Spain retain them in their full form with many having abandoned the tax due to low revenue, enforcement difficulties, or negative effects on investment and emigration.

 
In 2018, France replaced its broad wealth tax (ISF) with the narrower Impôt sur la Fortune Immobilière (IFI), a property tax on real estate assets exceeding €1.3 million. Germany suspended its wealth tax in 1997 after a court ruled it unconstitutional due to unequal treatment of real estate and other assets. Sweden repealed its tax in 2007 due to low revenue and discouragement of domestic investment.

Even countries that maintain wealth taxes face issues. Norway’s rate hike in 2022 triggered a wave of wealthy emigration, reportedly losing £435 million in . Spain’s wealth taxes raise just 0.5% of total tax revenue according to and some regions offer allowances and exemptions. Only Switzerland has sustained a stable, widely accepted system, aided by low rates, cantonal control, and a favourable overall tax regime.

Experts maintain that focused reforms to inheritance, capital gains, and property taxes are likely to be more effective and practical for raising revenue and addressing wealth inequality. Additionally, introducing a UK wealth tax at this stage would conflict with other measures reportedly under consideration by the Labour Government, such as launching a and reversing the 40% inheritance tax rule for that came into effect in April 2025.

In other news…

Bulgaria will adopt the euro next year (), Germany backs €46 billion in corporate tax breaks to spur growth () and the EU unveils plans to ease water shortages ().