The conditions of financial stability in the euro area have improved with the decline in recession risks, but the prospects remain fragile due to the high political and geopolitical uncertainty at a global level which leaves the markets exposed to possible negative surprises: the ECB writes in stability analysis. The outlook remains “fragile, as the scale of economic and financial shocks is high in a context of high uncertainty”, writes the ECB. “Geopolitical risks continue to cloud the outlook for financial stability,” ECB Vice President Luis de Guindos said.
“Tight financial conditions continue to test the resilience of vulnerable euro area households, businesses and governments,” and although the debt-to-GDP ratio of households and businesses has fallen below pre-pandemic levels, sovereign debt has it will instead stabilize “at higher levels, making public finances more vulnerable to adverse shocks”, writes the ECB in its financial stability analysis. “Debt servicing costs could continue to rise across all sectors in the future as maturing liabilities continue to revalue at significantly higher interest rates,” she continues.
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