Europe has averted scenarios of extreme instability ...
In recent months the interventions of the European Central Bank and the measures decided at both European and national level have allayed fears of a devastating crisis in the euro area. Along with some signs that demand in the United States and in the emerging economies is picking up, this has improved conditions in the financial markets.
... but significant risks for financial stability persist
The greatest risk for financial stability in Europe remains the spiral between slow economic growth, the sovereign debt crisis and the state of banking systems. Another threat comes from the segmentation of euro-area banking and financial markets along national lines, primarily as a result of the emergence of fears regarding the reversibility of monetary union. To counter these risks, the Governing Council of the ECB has launched a programme of outright monetary transactions (OMTs) for the purchase of government bonds to restore the proper functioning of the monetary policy transmission mechanism. The full efficacy of these interventions is conditional on further progress in European integration and in the structural reforms under way in several countries.
