ECB: Eurozone robust despite debt crises

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– European Central Bank report says low level of financial system stress in euro area reflects improving real economic outlook

ANKARA – Despite ongoing crises in Greece and other periphery EU economies, the eurozone remains relatively stable, according to a new report.

The low overall level of financial system stress in the euro area reflects an improving real economic outlook, the European Central Bank (ECB) claimed on Thursday.

An ECB Financial Stability Report said that the eurozone financial system was robust and holding up well against global market volatility.

“ECB action has been effective in allaying deflation fears that threatened to be harmful to both price and financial stability,” the report said.

While the report noted sharp global asset price increases, the euro area has not been affected, ECB research claimed.

“The prices of financial assets in most segments have continued to rise, not only in the euro area, but also in most advanced economies. The sharp increases in asset prices relative to the fundamentals have pushed valuations up, particularly in the fixed income market, but increasingly also in markets for other financial assets.”

“Nonetheless, a broad-based stretch in euro area asset valuations is not evident,” the report said.

Bank lending is under control and private sector credit expansion is controlled, according to the report, but real investment is still low, below 2008 levels.

Greece, and the periphery nations which still have high levels of debt, continue to threaten financial stability in the euro area, the ECB adds, claiming that private sector debt is still too high, although household debt has been reduced.

“Debt sustainability challenges remain for euro area sovereigns – especially for those that remain highly indebted and therefore vulnerable to economic and financial shocks.”

“On the side of the non-financial private sector, indebtedness of the euro area corporate sector continues to remain elevated, in contrast to household indebtedness which has fallen slightly and remains low compared with many advanced economy peers,” the report said.

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