ECB warns of insolvencies when pandemic stimulus measures are lifted

CNBC reports that European Central Bank warned that the 19 nations that share the euro are facing financial risks that are elevated and uneven, 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.

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.

Another risk on the ECB’s radar is the recent surge in U.S. benchmark bond yields. This has already led the central bank to step up its government bond purchases in recent weeks, but the Frankfurt-based institution is still concerned that higher borrowing costs across the Atlantic will affect indebted corporates, households and nations in the euro area.