EU Leaders Grapple with Bank Risks as Economy Weakens

European Central Bank President Christine Lagarde, left, speaks with Slovakia's Prime Minister Eduard Heger, center, and Cypriot President Nikos Christodoulides during a round table meeting at an EU summit in Brussels, Friday, March 24, 2023. (AP Photo/Geert Vanden Wijngaert)
European Central Bank President Christine Lagarde, left, speaks with Slovakia's Prime Minister Eduard Heger, center, and Cypriot President Nikos Christodoulides during a round table meeting at an EU summit in Brussels, Friday, March 24, 2023. (AP Photo/Geert Vanden Wijngaert)
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EU Leaders Grapple with Bank Risks as Economy Weakens

European Central Bank President Christine Lagarde, left, speaks with Slovakia's Prime Minister Eduard Heger, center, and Cypriot President Nikos Christodoulides during a round table meeting at an EU summit in Brussels, Friday, March 24, 2023. (AP Photo/Geert Vanden Wijngaert)
European Central Bank President Christine Lagarde, left, speaks with Slovakia's Prime Minister Eduard Heger, center, and Cypriot President Nikos Christodoulides during a round table meeting at an EU summit in Brussels, Friday, March 24, 2023. (AP Photo/Geert Vanden Wijngaert)

European Union leaders gathered Friday to gauge the risk of a banking crisis developing from recent global financial turbulence and hitting the economy even harder than the energy crunch tied to Russia's war in Ukraine.

The deliberations by EU government heads in Brussels follow US regulators shutting down two US banks, including Silicon Valley Bank, and a Swiss-orchestrated takeover of troubled lender Credit Suisse by rival UBS, The Associated Press said.

The emergency actions on both sides of the Atlantic revived memories of the 2008 global financial meltdown and the ensuing EU sovereign debt crisis, which almost broke apart the euro currency now shared by 20 European countries.

“For the moment, we see no reason to be worried,” Belgian Prime Minister Alexander De Croo told reporters on his way to the EU meeting. “But we monitor it really closely, almost on a daily basis, because no one knows what can happen.”

The European economy has been slowing rapidly since Russia invaded Ukraine 13 months ago to the day, leaving the EU flirting with recession. The war has fueled inflation by prompting cuts in supplies of previously abundant Russian oil, natural gas and coal and by denting consumer and business confidence.

The European Commission, the EU's executive arm, expects economic growth in the 27-nation bloc to slow to 0.8% this year from 3.5% in 2022 and 5.4% in 2021. A projected rebound in growth to 1.6% next year depends on a sound banking sector able to lend to businesses and consumers and protect deposits.

The EU has beefed up its regulation of financial institutions since the euro debt crisis, and little sign has emerged so far of broader contagion in Europe from Credit Suisse’s dramatic rescue.

Nonetheless, financial supervision in Europe remains a patchwork of EU and national authorities pursuing common approaches rather than heeding an actual single European rulebook.

For example, the euro area still lacks a common deposit insurance system, which is widely considered a key defense against future European bank crises. A stalemate among national capitals over how to share risk has left the bloc without this regulatory pillar.

On the market front, officials have said European banks generally have adequate cash buffers — while still urging vigilance.

“I am very confident in the amount of liquidity, the amount of resilience, that our banking system has built up,” said Paschal Donohoe, who leads the group of eurozone finance chiefs and is Ireland’s public expenditure minister. “But we can never be complacent.”

One reason for prudence is that the European Central Bank has raised interest rates from record lows, denting the balance sheets of lenders and making it more expensive for consumers and businesses to get loans. The ECB is seeking to bring stubbornly high euro-area inflation, which was 8.5% in February, closer to a 2% target.

ECB President Christine Lagarde and Donohoe are attending the EU summit to share their views about the economy.

“I’m really looking forward to the discussions with the president of the European Central Bank to understand where we are going and what tools they plan to use in the future — what are the prospects for our economy and inflation,” Estonian Prime Minister Kaja Kallas said.



Gold Steady as Inflation Data Sparks Caution over Fed Rate Outlook

Gold bullions are displayed at GoldSilver Central's office in Singapore June 19, 2017. REUTERS/Edgar Su/File Photo
Gold bullions are displayed at GoldSilver Central's office in Singapore June 19, 2017. REUTERS/Edgar Su/File Photo
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Gold Steady as Inflation Data Sparks Caution over Fed Rate Outlook

Gold bullions are displayed at GoldSilver Central's office in Singapore June 19, 2017. REUTERS/Edgar Su/File Photo
Gold bullions are displayed at GoldSilver Central's office in Singapore June 19, 2017. REUTERS/Edgar Su/File Photo

Gold prices held steady on Thursday as investors assessed a wave of economic data indicating persistent US inflation, hinting that the Federal Reserve may proceed cautiously with further interest rate cuts.
Spot gold held its ground at $2,637.78 per ounce, as of 0739 GMT.
US gold futures edged 0.1% lower to $2,637.30.
The market is focusing on the Fed's rate cuts, with the latest core Personal Consumption Expenditures (PCE) data suggesting slowing inflation, leading to expectations that the Fed's policy next year might be less dovish than previously projected, said Kelvin Wong, OANDA's senior market analyst for Asia Pacific.
The Fed's struggle to bring inflation back to its 2% target, combined with the possibility of higher tariffs under the upcoming Trump administration may constrain the central bank's ability to implement rate cuts next year.
Markets now see a 68.2% chance of a quarter-point rate cut in December, as per the CME group's FedWatch tool.
Elsewhere, Mexican President Claudia Sheinbaum warned of retaliation if Trump enforces a 25% tariff, citing potential US job losses and higher consumer prices.
Gold is regarded as a safe-haven investment during periods of economic or geopolitical instability, including trade wars.
Trading is expected to be thin with US markets closed on Thursday for the Thanksgiving holiday.
In the short term, particularly over the next few days to two weeks, gold could come under further pressure, Wong said, adding the longer-term bullish trend for gold, however, remains intact.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.10% to 878.55 metric tons on Wednesday.
Spot silver fell 0.8% to $29.84 per ounce, platinum edged 0.1% higher to $928.10 and palladium added 0.6% to $978.05.