European Central Bank warns coronavirus response could raise fears of eurozone breakup

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The impact of the Covid-19 pandemic on the eurozone economy has been significant, according to the European Central Bank (ECB), increasing the underlying financial vulnerabilities of the euro area.

The ECB’s May 2020 Financial Stability Review suggests that the euro governments’ vast fiscal response to the pandemic could raise questions over their ability to repay debts, and could revive the threat of countries leaving the single currency.

“Should measures taken at the national or European level be deemed insufficient to preserve debt sustainability, the market assessment of redenomination risk might rise further,” the ECB said.

“Redenomination risk” refers to the danger of some countries quitting the euro or the single currency collapsing altogether.

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