Eurozone countries risk a boom-and-bust cycle if consumers copy US and UK counterparts and fund increased spending by borrowing against the value of their houses, the European Central Bank warned yesterday. Financial Times
Mortgage equity withdrawal schemes could lead to 'undesirably pronounced boom-and-bust phenomena, which are to be avoided both from a monetary policy and financial stability perspective,' the ECB said in a report on financial integration in the eurozone.
Its warning was made as the ECB reiterated the economic benefits it believes would result from breaking down barriers in eurozone financial markets. But the central bank also acknowledged that recent financial market turmoil had shown that there were also risks involved.
Closer financial integration 'raises the scope for spill-over effects and contagion across borders', said Lucas Papademos, ECB vice president. But the progress made globally towards integration should not be blamed for financial market events, and no one was arguing for less integration in the eurozone, he argued.