European Central Bank warns of insolvencies when pandemic stimulus measures are lifted
The 19 nations that share the euro are facing financial risks that are elevated and uneven, the European Central Bank warned Wednesday, and more targeted stimulus could be required as the region recovers from the coronavirus crisis.
The pandemic has hit different economic sectors with varying degrees of severity and speed, with tourism and hospitability among the most impacted. In its latest financial stability review, the ECB warned that this uneven shock is concentrating risks in very specific nations and parts of the euro zone economy.
‘Important’ increase in insolvencies
The euro zone’s central bank is particularly concerned about a higher corporate debt burden in countries with larger services sectors, because this could increase pressure on governments and lenders in these nations.
This could be a headache in the short term as governments lift their pandemic-related stimulus, such as furlough programs.
“As this support is gradually removed, considerably higher insolvency rates than before the pandemic cannot be ruled out, especially in certain euro area countries,” the ECB said in a statement.
Reference: CNBC
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