De Guindos warns of “significant” deterioration of financial stability in the Eurozone

“Is there a Significant deterioration of financial stability in the euro areaThe former Spanish Minister of Economy said in his speech at the XIII Financial Meeting organized by ‘Expansión’ and KPMG, due to worsening economic prospects and tightening financing conditions.

In this sense, the eurozone “mild” technical recession Between the last quarter of 2022 and the first quarter of 2023, with inflation rising above 10%, it will remain at current levels in the coming months and will moderate but remain high around the second quarter of 2023.

That’s why the ECB vice-president argued that the central bank’s best contribution is to reduce inflation, as the expected economic slowdown for the euro zone will not be enough to reduce inflation on its own. rate of return to target 2% in the medium term

Guindos emphasized that:mark to follow inflation underlying“It will be the one that will indicate continued inflationary pressures, as different interventions by national governments can distort the reading of the overall inflation data.

In this way, he insisted that the Governing Council would make its decisions on the basis of available data and in an aggregated way, emphasizing the importance of fiscal policy not contradicting monetary policy as in the UK this fall, forcing the US to intervene. UK bank.

Banks

Regarding banks, the ECB vice-president emphasized that they are inside the banks. better capital and liquidity position although the recent increase in rates made it possible to improve it, the only question is more with profitability than with the previous crisis.

However, Guindos warned that the increase in rates will eventually affect the solvency of families and companies, and this will have an impact. effect on solvency, The cost of liabilities, including deposits, will also increase.

Likewise, he stated that the reversal of the interest rate curve, which is higher in the short-term than in the long-term, may have an impact on the development of net margins and therefore made a demand. “precaution and precaution” And don’t get caught up in the short term.

On the other hand, he warned once again that the non-banking sector could intensify investments. The main vulnerability of the European financial sector, especially when it comes to hedge funds that concentrate most of the leverage.

For this reason, he reminded that this sector does not have as strict supervision as the banks, pointing out the importance of ensuring the supervision of this sector. portfolio of macroprudential actions.