A new Middle East conflict and a US assets sell-off are the two biggest risks to the \u2060euro zone, which, if twinned, could tip the euro area into a recession and send inflation near 5%, the European Stability Mechanism said in a report today.<\/p>\n
Europe is now far more exposed to American financial markets than a decade ago.<\/p>\n
The euro zone’s GDP exposure to the US stood at 47% last year, compared with 18% in 2013, the ESM said in its \u200cfirst annual report, titled \u2060Euro Area Stability Watch.<\/p>\n
“Rising political uncertainty, longer-run fiscal sustainability concerns, and stretched equity valuations built on artificial intelligence-related earnings expectations create the potential for a sudden asset price correction emanating from the US,” the report said.<\/p>\n
The ESM, a European crisis fund worth over \u20ac430 billion, \u200coutlined this vulnerability alongside the possibility of a new Middle East energy shock.<\/p>\n
The Iran war had a \u2060major impact on global energy markets and supply chains due to \u200cthe four-month closure of the vital shipping lane – the Strait of Hormuz. \u2060<\/p>\n
American \u200cand Iranian negotiators have yet to agree a lasting peace since their interim deal last month.<\/p>\n
If both risks hit, the euro area’s GDP may only rise 0.6% in 2026 and \u2060contract by 0.4% in 2027.<\/p>\n
“The euro area has large and increasing holdings \u2060of US portfolio investments. At end-2025, the US accounted for nearly half of the euro area\u02bcs total global portfolio holdings – 59% of equity positions and 36% of debt, compared with roughly one-third in 2013,” the report said.<\/p>\n
“Therefore, a material repricing of US assets would bring substantial direct losses for European \u200cinvestors,” it cautioned.<\/p>\n","protected":false},"excerpt":{"rendered":"A new Middle East conflict and a US assets sell-off are the two biggest risks to the \u2060euro…\n","protected":false},"author":2,"featured_media":536000,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[72,113,61,60],"class_list":["post-535999","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-ie","tag-ireland"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/535999","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=535999"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/535999\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/536000"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=535999"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=535999"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=535999"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}