European Central Bank: US tariffs exacerbate financial risks in the Eurozone

Frankfurt, November 26 (Xinhua) -- The latest financial stability assessment report released by the European Central Bank on the 26th pointed out that due to the uncertainty of trade agreements and the long-term impact of tariffs on the economy and finance, the financial stability vulnerability of the eurozone is still at a high level.

The indicators measuring trade policy uncertainty have significantly fallen from their April high, but uncertainty still exists and may soar again, "said Louis de Guindos, Vice President of the European Central Bank, in a report

The report states that in recent times, the market focus has shifted from the risk of immediate escalation of geopolitical tensions to the longer-term impact of tariffs and trade frictions. Despite the easing of trade tensions, the uncertainty in the current environment remains high, and there is a possibility that trade policy uncertainty may soar again in the future.

The report also points out that risk spillovers from the United States have become a key macro financial vulnerability factor, in addition to the trade sector. The sustained huge fiscal deficit, rising expectations of debt repayment costs, and high financing demand have raised concerns in the market about the credibility of the US fiscal system, and the huge current account deficit has exacerbated these concerns. These developments have weakened the safe asset attribute of US treasury bond and led to the weakening of the US dollar, which may magnify the impact of US tariffs on euro zone exporters.

The report highlights three core risks facing the eurozone: firstly, financial stability fragility remains high; Secondly, the fiscal prospects of some developed countries are facing challenges; The third is credit and financing risks in the banking system.

The European Central Bank pointed out that although the balance sheets of Eurozone businesses and households have improved in recent years, businesses are still vulnerable to the impact of tariffs. If there are large-scale layoffs, the family's ability to repay debts will also be compromised. Similarly, the credit risk exposure of Eurozone banks to companies vulnerable to tariffs may still affect the quality of their loan assets.

The European Central Bank emphasizes that maintaining and enhancing the resilience of the financial system is crucial in the current highly uncertain macro financial and policy environment.