The German central bank (Bundesbank) warned that the country’s financial stability is threatened by rising global debt levels, overvalued stock markets, inconsistent US trade policy and deteriorating bank loans.
Germany, Europe’s largest economy, has been in recession for three years.
Increased defense and infrastructure investments may support growth in the short term, but structural rigidities are still hindering recovery. According to the Bundesbank’s Financial Stability Report, the unpredictable US trade policy is negatively impacting the export-oriented German industry. Bank Executive Board member Michael Theurer stated, “The unbalanced US trade policy is challenging the global economy, and therefore Germany.” Despite trade agreements, uncertainty persists, weakening the credit quality of German banks. In particular, the rising non-performing loans in the commercial real estate sector are increasing pressure on the system. The Bundesbank also drew attention to the rising global debt levels, stating that this could pose a serious threat to Germany’s financial system. It was emphasized that the new fiscal rules do not guarantee long-term sustainability. The Bundesbank also warned that the stock and corporate bond markets are overvalued. Theurer said, “Markets can change their assessments suddenly; this can lead to significant losses for financial institutions.”According to the Bundesbank, economic reforms and sustainable growth are now inevitable for Germany’s financial security.
