ECB Warns Trump's Victory, Brexit May Undermine Eurozone Stability

Donald Trump's presidential victory and Brexit may undermine the stability of the Eurozone, according to the European Central Bank.

MOSCOW (Sputnik) — The US presidential election and the UK decision to withdraw from the European Union have ratcheted up the volatility and the level of the euro area composite indicator of systemic stress, the European Central Bank (ECB) said Thursday.

"Factors that pushed it up include higher political uncertainty following the outcomes of the UK referendum on EU membership and the US election as well as market concerns about euro area banks’ longer-term profitability prospects," the regular stability review indicated.

The ECB, the central bank for EU’s single currency, said implications of Donald Trump’s presidential victory in the United States for the 19-nation euro zone’s financial stability were "highly uncertain at the current juncture."

The ECB anticipates the US economy could become more inward-oriented under Trump, while the fiscal deficit might grow as a result of tax reductions and increased infrastructure and defense spending, as promised by the president-elect in his acceptance speech.

"In such a scenario, the euro area economy may be impacted via trade channels and by possible spillover effects from higher interest and inflation rate expectations in the United States," the bank predicted.

Despite the gloomy outlook, the ECB emphasized that both the UK vote to split from the European Union and the US presidential election led to short-lived episodes of market turmoil followed by quick recoveries.