Europes largest stock market will fall by over 10% this year as the financial crisis has made it the most vulnerable in Europe, according to an economic forecast released by the EU’s financial watchdog.
The EU Financial Stability Board said on Tuesday it had forecast that the ESM would lose about €15bn this year, compared with an average annual loss of €6bn during the previous five years.
The ESM is the main source of funding for most European Union (EU) member states.
It provides about 80% of EU budget spending, and is the EUs main source for capital markets.
“The ESSM is vulnerable to the adverse impact of the crisis on its finances, the financial markets and the stability of the financial system,” the watchdog said in its annual report.
The report said the ESSMs biggest fall would be in the value of the euro, which has fallen more than 20% against the dollar in recent years.
The ESM also relies heavily on interest-bearing bonds issued by state-owned banks, which have been wiped out by the crisis.
A separate report by the European Commission said that the total amount of debt held by the EFSM would grow by nearly €100bn in the coming years, from €6.4tn at the end of 2016 to €7.1tn at 2021.
“This would be an unprecedented increase, and it would also have significant implications for the ETS,” the commission said.
The fall in the ESR’s value, due to the drop in its reserves, would add to the €6tn of total EU public debt that would fall over the next five years, the report said.
It said that by 2021, the ECS could be reduced to less than 2% of GDP, a level not seen since the Great Depression.
It also predicted that the ECB would be able to print money, as it had been for decades.
“We expect that the balance sheet of the EBS will continue to expand in the future,” it said.
The EBS is a subsidiary of the European Central Bank, and has been used by governments to buy bonds from state-controlled banks.