The European Central Bank yesterday issued a stark warning over the threat posed by the scaling back of US monetary stimulus, calling on eurozone policy makers to do more to prepare for market shocks from Federal Reserve tapering.
In its latest financial stability report, the ECB said the risks to the eurozone’s financial system from outside the currency bloc had grown since May because of the Fed’s talk of scaling back its $85bn of monthly bond purchases, despite an improvement in market conditions.
“Starting in May, there was a significant repricing in global bond markets, which took place largely because of changing monetary policy expectations in the United States – with increased foreign exchange market volatility and stress borne largely by emerging market economies,” the ECB said.