The ECB warns of the consequences of trade disputes and debt

An increase in trade disputes threatens the economy of the euro area and may increase the vulnerabilities of the financial system of the euro countries, the European Central Bank warns in a new assessment of economic stability in its Financial Stability Review report.

According to the report, tensions in world trade also increase the likelihood of follow-up events.

“In a situation of heightened macroeconomic and geopolitical uncertainty, risk sentiment can change suddenly sharply, given the high valuations of asset classes and the concentrated risks of the financial system,” the report states.

The ECB report’s concerns about world trade tensions are as follows Donald Trump election as the next president of the United States. Trump is known for his pro-US trade policy, which in his first term included import tariffs on many trading partners, including the European Union.

According to the ECB, the increased tensions in world trade and the strengthening of protectionist tendencies in the world are raising concerns about the growth of the global economy, a new rise in inflation and a drop in asset prices.

According to the report, the market’s concern about the euro area has shifted from high inflation to economic growth being weaker than expected.

Deputy Governor of the ECB Luis de Guidos writes in the foreword of the report that the financial markets have shown resilience, as the periods of high volatility have remained short, but the valuation levels and the concentration of risks, which have risen especially high, are still “considerable and make new periods of volatility more likely than usual”.

The report also indirectly warns of the danger of the euro countries drifting into a new debt crisis if the euro countries are unable to accelerate growth, reduce public debt and correct the uncertainty of policy measures. The report highlights “increased debt levels and high budget deficits” as well as the recent election results of euro countries, the only example of which is France.