1 December 2023
The Euro-zone faces a persistent risk of a “sovereign doom loop,” where banking sector troubles could severely impact sovereign states. Despite attempts to disconnect banks from state finances, S&P Global Ratings warns of heightened risks in 2024 due to recession concerns and uncertain fiscal policies. This situation, similar to the UK’s 2022 financial crisis, could lead to significant market confidence loss. Banks, heavily invested in government bonds, may further increase their holdings, deepening the interlinkage and risk. The region could face further destabilization due to potential austerity measures and tight monetary policies.