The risk of a banking crisis hitting the economy
EU officials have met to discuss the unfinished business of a banking emergency caused by recent international financial instability, which will have an even more detrimental impact on the economy than the energy crisis due to Russia’s hostilities in Ukraine.
The EU chiefs’ talks in Brussels followed the noisy closure by US regulators of two US banks, SVB and Silvergate, and the takeover of Swiss-organized lender Credit Suisse by rival UBS.
Events on both sides of the Atlantic revived memories of the 2008 global financial crisis and the European Union sovereign debt crisis that rocked the euro.
Europe’s economy has weakened since Russia invaded Ukraine 13 months ago, leaving the EU battling recession. The war fueled inflation by crowding out Russia’s once-abundant supplies of oil, gas and coal, slowly eroding consumer and business confidence.
The EC, the executive arm of the EU, anticipates economic growth in the 27-nation bloc to slow to 0.82% in 2022 from 3.52% in 2021 and 5.5% in 2020. The projected increase to 1 .7% next year depends on the vote. The banking sector can lend to businesses and consumers and help them.
EU struggles to implement banking regulation
Since the euro debt crisis, the EU has strengthened its rules and regulations in relation to financial institutions. So far, there has been little hope of a broader expansion in Europe due to the Credit Suisse bailout.
The eurozone still needs a common management center for deposit insurance, which is widely seen as a key mechanism to deal with Europe’s future banking crisis. Instability between national capitals over how to share risk has left the bloc without this main regulatory force.
The EU Central Bank raised interest rates from record lows, creating difficulties for creditors and more expensive loans for consumers and businesses. The European Central Bank is trying to tackle the problem of skyrocketing inflation in the euro zone, which was recorded at 8.6% in February.
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