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Eurozone stability risk on the rise with some countries vulnerable 

November 24, 2016

The Irish Times

Financial stability risk is rising in the eurozone and concerns may re-emerge about some countries’ ability to sustain their debt, potentially raising pressure on weak sovereigns, the European Central Bank has said.

In an unusually downbeat message, the ECB warned that global political shifts, including the new US administration, may trigger sudden asset price volatility and flow reversals, compounding existing vulnerabilities to rising interest rates and yields.

“Higher political uncertainty may lead to more domestically focused, growth-hindering policy agendas,” the ECB said in a regular stability review.

“This, in turn, could delay much-needed fiscal and structural reforms and could in a worst-case scenario reignite pressures on more vulnerable sovereigns,” it added. “In particular, concerns about debt sustainability might re-emerge despite relatively benign financial market conditions.”

The ECB warned that political events in advanced economies, including a long list of elections and plebiscites on both sides of the Atlantic, could trigger big market shifts, leading to financial contagion – a danger given that the euro zone remains in a vulnerable, low nominal growth environment. Read more

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