The central bank for Europe has pointed to the contagion of the sovereign debt crisis plaguing countries on the periphery of the eurozone as the primary risk to financial stability in the region, according to The Wall Street Journal. On Wednesday, the European Central Bank issued its semi-annual Financial Stability Review that called on the countries of the eurozone to redouble efforts to contain the crisis, warning that efforts to solve the problem so far “have not been sufficient.” The bank warned that a debt restructuring could have “potentially very dangerous implications,” although officials acknowledged that implementing austerity measures has become more challenging.
The ECB report said, “Despite improving global and euro area economic and financial conditions, the overall outlook for financial stability has remained very challenging.” The report said crisis management so far has been “fraught with some detrimental shortcomings,” and said the situation “remains the most pressing concern” for the region. The report also pointed to key risks in potential losses from property-price declines, surging long-term interest rates, and asset bubbles in emerging markets as other areas that need to be watched in the future. The ECB restated its opposition to any restructuring that qualifies as a credit event.