ECB warns of high risks of financial crisis

What if the exit from the crisis presented more risks than the historic recession caused by the pandemic itself?

This is the scenario on which the European Central Bank (ECB) warns.

In a financial stability report released on Wednesday, she warns of a

risk

of destabilizing the system as the economy gradually returns to normal.

This would translate in practice into a predictable increase in corporate bankruptcies, largely avoided at the height of the crisis, thanks to the support of States.

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The deconfinements and reopening of closed sectors across Europe show that there is

greets Luis de Guindos, vice-president of the ECB, who however considers this improvement

. Companies, banks and other financial institutions, States… the sources of vulnerabilities are numerous in the economic landscape. The major risk being that of a destabilization of one of the actors which would spread to the whole system. The rise in indebtedness by both sides, which helped cushion the recession, remains sustainable as long as rates remain low. The recent rise in US interest rates raises concerns in this regard. Likewise, high valuations in the equity or real estate markets pose a threat of a

due to the deterioration of corporate balance sheets.

These risks weigh unevenly on the euro zone countries and the sectors of activity.

The second and third waves of the pandemic affected the service economy more, while industry resisted better.

underlines Luis de Guindos.

It is these countries, including Italy, Spain, Greece and France, where

and that of states has reached records.

Expected increase in bankruptcies

The ECB's main concern is the risk of corporate failures, which could ultimately destabilize the banking sector. The number of bankruptcy filings will automatically increase compared to the artificially low level of 2020, in particular within the sectors most affected by the pandemic - hotels, restaurants, tourism - and the most fragile SMEs. It remains to be seen whether it is to return to the normal low water level before the crisis or to exceed it. Debt ratios jumped, from 220% of equity at the end of 2019 to 270% on average at the end of 2020, for the 10% of the most indebted companies.

the report stresses.

The ECB encourages leaders to withdraw support gradually and in a targeted manner so as not to add fuel to the fire.

justifies its vice-president.

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However, at the same time, States will sooner or later have to return to a certain form of budgetary discipline to set up programs to reduce their own debt, which exploded during the crisis (from 86% of GDP in 2019 to 100% in 2020 on average in the euro zone). The rules of the Stability and Growth Pact on the deficit and the debt are suspended until the end of 2022. But the heated discussion which begins on their revision does not remove the pressure for a consolidation of public finances, spurred by the countries the most "frugal" countries of the continent.