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The risk of a banking crisis hitting the economy

The risk of a banking crisis hitting the economy

EU officials have gathered to talk about the pending issues 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 talks by EU chiefs in Brussels followed US regulators’ noise closure of two US banks, SVB and Silvergate, and the takeover of troubled Swiss-organized lender Credit Suisse by rival UBS.

Events on both sides of the Atlantic revived memories of the 2008 worldwide financial crisis and the European Union sovereign debt crisis that shook the euro currency.

Europe’s economy has weakened since Russia invaded Ukraine 13 months ago, leaving the EU struggling with recession. The war fueled inflation by displacing previously abundant Russian oil, gas, and coal supplies, slowly eroding consumer and business confidence.

The EC, EU’s executive arm, anticipates that economic growth in the 27-nation bloc will slow to 0.82% in 2022 from 3.52% in 2021 and 5.5% in 2020. The projected rise 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 regarding financial institutions. So far, there has been little hope of a wider spread across 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 coping mechanism for Europe’s future banking crisis. Instability among national capitals over how to share risk has left the bloc without this main regulatory force.

The EU Central Bank raised interest rates from their all-time lows, creating difficulty for creditors and more expensive borrowing for consumers and businesses. The European Central Bank is attempting to address the issue of skyrocketing inflation in the Eurozone, which was recorded as 8.6% in February.

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