May 27, 2020

Andrew Campbell 

On May 26, the European Central Bank (ECB) released its biannual Financial Stability Review which has published the latest forecast predicting financial status in the Eurozone. The forecast provided an overview of potential risks to financial stability in the euro area. The ECB issued a warning that aimed to appeal awareness in the financial industry and among the public of the Eurozone about financial stability issues.

So far, the coronavirus has reportedly brought huge social and economic disruption. The ECB pointed out key vulnerabilities for the Eurozone financial system which has been impacted most.

According to statistics in the Financial Stability Review, public debt will approach 200% of gross domestic product (GDP) in Greece, 160% in Italy, 130% in Portugal, and will hit just below 120% in France and Spain. Meanwhile, the ECB indicated the rise in public debt levels could trigger a reassessment of sovereign risk by market participants and reignite tension in more vulnerable sovereigns.

The ECB has warned thatsoaring government debt levels put Eurozone on the brink. Eurozone governments’ budget deficits have been forecast to rise to an average 8% ofGDP, well above those witnessed after the 2008 financial crisis.