The European Central Bank (ECB) cautions that the potential of a recession in the euro area is rising as it observes increased concerns for Financial Stability in the region.

ECB Vice President Luis de Guindos presented the bank’s financial Stability review on Wednesday. According to them, there are now greater risks to financial stability, and a technical downturn in the euro region is now more likely.

According to de Guindos, the ECB’s monetary policy should be focused on attaining price stability because persistently high inflation is currently the most significant threat to financial stability and the economy.

The ECB warned in its report that banks may experience increased loan defaults in the medium term as it becomes more challenging for businesses and families to make their debt payments in the worsening economic climate.

It stated that, should the prognosis continue to worsen, a rise in corporate defaults cannot be ruled out, particularly among businesses that use a lot of energy.

However, de Guindos stated that the euro area’s banking sector is “well placed to withstand various dangers.”

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