FRANKFURT, Germany – The vice-president of the European Central Bank (ECB) spoke on Monday at the opening conference of the 21st Euro Finance Week in Frankfurt and warned about Europe’s increasing concern about debt sustainability, in both public and private sectors, pinpointing Italy as the most prominent case.
Vice-president of the ECB Luis de Guindos expressed his concern towards Italy’s overall debt level and the political tensions surrounding the Italian government’s budget plans.
“The strong market reactions to political events have triggered renewed concerns about the sovereign-bank nexus in parts of Europe,” Guindos said in his ECB speech.
“Although contagion has been limited so far, it remains a possibility,” the ECB vice-president warned.
In light of the outlined risks, the ECB vice-president urged European leaders to apply appropriate fiscal strategies and rules across the bloc.
While robust growth rates were projected across Europe over the next two years, Guindos maintained that some risks in the financial system were mounting and pointed out the ECB was keeping a close eye on developments that could prompt economic stability concerns globally.
“The current expansion of the US is now significantly longer than historical norms and the second longest in US modern history,” Guindos said.
“Looking ahead, a downturn in the US macro-financial cycle could trigger a reassessment of riskier asset classes,” the statement added.
De Guindos also warned that on a global level pressure had increased in emerging market economies due to a strong dollar and the uncertainty generated by global trade tensions.
“These developments may undermine global growth prospects and ultimately lead to abrupt increases in risk premia. This could trigger a domino effect – leading to a sharp sell-off and further price pressures in assets with stretched valuations – with the potential to spill over to euro area financial markets, “ The Spanish former Minister of Economy cautioned.