ECB Vice President Luis de Guindos warned in a speech today that while the fundamentals for solid growth rates over the next two years are still in place, some risks are building up in the financial system. The first one is that current US expansion is “now significantly longer than historical norms”. A down turn in the US “could trigger a reassessment of riskier asset classes.”
Secondly, “tensions have grown in emerging market economies: due to strong US Dollar and increased trade frictions. Such developments may “undermine global growth prospects and ultimately lead to abrupt increases in risk premia”.
Thirdly, there were “re-emerging debt sustainability concerns” in Europe, both in public and private sector. And, “Italy is the most prominent case at the moment”. Meanwhile, “strong market reactions to political events have triggered renewed concerns about the sovereign-bank nexus in parts of Europe” But contagion has been “limited” so far.
De Guidndo’s full speech “Coming to the forefront: the rising role of the investment fund sector for financial stability in the euro area“.
