December 10, 2010
The European Central Bank warned governments Thursday that they risked unleashing an "unsustainable debt spiral" in the financial markets if they failed to follow through on their pledges to cut budget deficits.
Although turmoil in European government bond markets has eased in recent days, the central bank of the 16 economies that use the euro said the "overall economic and financial situation is still fraught with risks."
In a semiannual report on financial stability, it identified two main dangers: persistent concerns about dismal public finances and large imbalances between economies.
Worries about government debts could undermine economic growth and erode banking stability, a combination that the ECB dubbed a "triangle of vulnerabilities" that has already gripped Greece and Ireland.
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