FRANKFURT, Sept 9 (Reuters) - The combination of rising national debts and risk averse financial markets carries potentially large macroeconomic risks, the ECB said in its monthly bulletin on Thursday.
An article in the ECB's September bulletin said that a loss of confidence in the sustainability of public finances in one country could spread and infect all parts of a financial system, from banks and pension funds to individual investors.
It warned the problems could also choke an economy's credit supply. They could sap the worth of government bonds, assets frequently used by banks as collateral to finance lending.
It said that to avoid such problems, highly indebted euro area countries needed to commit to longer-term fiscal consolidation, although it was impossible to judge what level of debt would be seen as acceptable for markets.
'This will provide a fiscal anchor in the current uncertain environment and prevent fiscal burdens from weighing down on growth in the longer term,' the article said.
'In a global high-debt environment, this benefit of macroeconomic stability is magnified,' it added
(Reporting by Marc Jones; Editing by Toby Chopra) Keywords: ECB BULLETIN/FISCAL (marc.jones@thomsonreuters.com; +49 (0)69 7565 1219; reuters messaging: marc.jones.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
An article in the ECB's September bulletin said that a loss of confidence in the sustainability of public finances in one country could spread and infect all parts of a financial system, from banks and pension funds to individual investors.
It warned the problems could also choke an economy's credit supply. They could sap the worth of government bonds, assets frequently used by banks as collateral to finance lending.
It said that to avoid such problems, highly indebted euro area countries needed to commit to longer-term fiscal consolidation, although it was impossible to judge what level of debt would be seen as acceptable for markets.
'This will provide a fiscal anchor in the current uncertain environment and prevent fiscal burdens from weighing down on growth in the longer term,' the article said.
'In a global high-debt environment, this benefit of macroeconomic stability is magnified,' it added
(Reporting by Marc Jones; Editing by Toby Chopra) Keywords: ECB BULLETIN/FISCAL (marc.jones@thomsonreuters.com; +49 (0)69 7565 1219; reuters messaging: marc.jones.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.