After a catastrophic year, the financial markets have rebounded for just over a month. The CAC 40 has recovered 17% since early October, returning to its level of three months ago, the euro has gained 8% against the dollar over the same period, again above parity (at 1.03 ) and the yield on French bonds, which had risen to 3%, fell to 2.6%. But all this risks being a sham, warns, Wednesday, November 16, the European Central Bank in its report on financial stability.
“We believe that the risks to financial stability have increased, while a technical recession in the euro zone has become more likely”, says Luis de Guindos, Vice-President of the ECB. His warning is twofold.
The first concerns economic fragility. Inflation in the euro zone reached 10.7% (over one year), a record for the region, and, unlike the United States, it shows no signs of slowing down. This weakens household consumption and increases the risk of bankruptcy for companies, especially those that are large energy consumers.
Until now, nothing new. However, the ECB believes that the markets have not taken the real measure of this coming recession. “For now, the decline in [marchés] only reflected the direct impact of the rise in interest rates, but perhaps not completely the deteriorating economy. » Clearly, further declines are possible, especially if inflation is more persistent than expected.
Risks of malfunction
The second warning from the ECB is more technical, but potentially more worrying. It’s about the risks of market failure, a kind of Lehman Brothers moment like the collapse of the American bank in 2008, which caused a global crash.
Already, several upheavals have hit the headlines in recent months. The beginning of financial panic in the United Kingdom in September is cited as an example by the ECB. At the time, the British government had presented a large plan of unfunded tax cuts, logically causing a rise in the British bond rate.
More unexpectedly, the hurricane swayed part of the pension funds. These had derivatives exposing them to too sharp a rise in rates. In an emergency, they had to withdraw cash to cover their losses, which had forced them to sell assets in a panic, further accentuating the fall in the markets. Only the intervention of the Bank of England restored calm.
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