'Markets could break': Eurozone on brink of financial meltdown as inflation surges

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The eurozone is standing on the brink of a financial meltdown that could rival the 2008 debt crisis. The warning comes amid surging energy costs that have sent inflation across the bloc to a record 10 percent. Analysts say stresses within the EU’s financial system have already reached levels last seen over a decade ago during the sovereign debt crisis.

The European Central Bank’s financial stress index has risen steeply since the beginning of 2022.

The indicator examines and measures strains in bonds, stocks and money markets across the region.

Over the course of the year, the stress index has jumped from below 0.1 to almost 0.5 today, according to Saxo Bank.

During the previous debt crisis, the index exceeded 0.6.

Experts believe the ECB may be forced to follow the Bank of England’s lead and intervene in markets to buy up distressed assets.

Christopher Dembik, head of macroeconomic research at Saxo Bank, said: “If it continues increasing, it could reach in a matter of weeks levels of 2011 – at the peak of the European sovereign debt crisis.

“Tension is increasing in global credit markets, especially in the eurozone.”

He added: “We are now in a situation where the markets could easily break.

“We cannot exclude that other central banks will step in, following the examples of the Bank of England, if financial conditions continue to deteriorate.”

The eurozone’s last debt crisis began in 2008 with the collapse of banks in Iceland.

The crisis soon spread throughout the EU and was most keenly felt in Greece, Spain, Ireland, Portugal, and Cyprus.

The aforementioned EU countries were unable to repay or refinance their government debt.

READ MORE: Treasury minister rubbishes criticism as he points to Berlin inflation

They pointed to turmoil in both global markets and the eurozone’s housing market.

The European Systemic Risk Board – part of the ECB – said: “Risks to financial stability stemming from a sharp fall in asset prices remain severe.

“This has the potential to trigger large mark-to-market losses, which, in turn, may amplify market volatility and cause liquidity strains.”

The ECB is coming under pressure to continue aggressive interest rate rises when it meets next month on account of spiralling inflation.

Consumer prices in the eurozone rose 10 per cent in the year to September, accelerating from 9.1 per cent in August.



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