There European Central Bank released the November Financial Stability Review, the report on the risks to economic growth and financial stability in the euro area. Despite the recovery, albeit weak, the ECB highlights various possible risk factors, especially international ones, for the public debt of the most exposed member countries, such as Italy.
However, the problems also extend to many families and businesses in difficult conditions vulnerability. Banks could also end up under pressure with increasingly smaller balance sheet assets and therefore possible crisis situations if the economy were to slow down again.
The ECB report on financial stability
In its latest financial stability report, the European Central Bank underlined numerous risks to which the euro area economy is exposed: “The outlook for financial stability is obscured by accentuated macro-financial and geopolitical uncertainty, together with growing uncertainty in trade policies” communicates the ECB .
“Underlying vulnerabilities leave equity and corporate credit markets susceptible to further volatility. High valuations and risk concentration, particularly in stock marketsincrease the likelihood of abrupt adjustments,” the report continues. The reference is in particular to the geopolitical instabilities that have emerged in recent years, such as the war in Ukraine or the Middle East, which are capable of destabilizing the financial markets.
This, according to the ECB, is a problem especially for countries that are very vulnerable on the financial markets, such as Italy. With the highest debt in the EU and one of the highest in the world in relation to GDP, our country depends almost entirely on its ability to raise money through government bonds to guarantee the functioning of the public machine. Any variation in performance is therefore amplified and has a harsh impact on public spending.
The risks for banks, families and businesses
However, it is not only states that are moved to this type of action market fluctuations. The ECB is also concerned about the stability of European banks: “If adverse dynamics were to materialise, non-bank intermediaries could amplify market stress due to their liquidity fragilities, in some cases accompanied by high financial leverage and exposures concentrate,” the report continues.
“While the overall increase in credit risks has so far been gradual, small and medium-sized businesses and low-income households could face challenges if growth slows more than currently expected, which could, in turn, adversely affect quality of assets of financial intermediaries in the euro area” continues the ECB, also underlining the precarious situation of the most vulnerable families.
“However, in aggregate, banks’ ability to absorb further deterioration in asset quality continues to be supported by high levels of profitability and robust buffers capital and liquidity” concludes the ECB, thus reiterating that, also thanks to the reforms following the latest financial crises, the credit institutions of the European Union can overcome even moments of great crisis and do not entirely rely on the collection of debts to keep their accounts positive .
