EU leaders gauge risks from financial crisis

BRUSSELS AP -- European Union leaders gathered Friday to gauge the risks of a banking crisis that is coming from recent global financial turbulence and hitting the economy even harder than the energy crunch linked to Russia's war in Ukraine.

Two U.S. banks, including Silicon Valley Bank, have been shut down by EU government heads in Brussels, and a Swiss- orchestrated takeover of Credit Suisse by rival UBS, following the deliberations by EU government heads in Brussels.

The emergency actions on both sides of the Atlantic revived memories of the 2008 global financial meltdown and the EU sovereign debt crisis, which almost broke apart the euro currency shared by 20 European countries.

Belgium's prime minister Alexander De Croo told reporters on his way to the EU meeting that there was no reason to be worried. We monitor it closely because no one knows what can happen, and we have to do it on a daily basis. The EU flirts with a recession after Russia invaded Ukraine 13 months ago to the day, which has led to a slowing of the European economy. The war has fueled inflation by reducing supplies of previously abundant Russian oil, natural gas and coal, and hurting consumer and business confidence.

The EU's executive arm believes that economic growth in the 27 nation bloc will slow to 0.8% this year from 3.5% in 2022 and 5.4% in 2021. A projected rebound in growth to 1.6% next year depends on a sound banking sector that can lend to businesses and consumers and protect deposits.

Since the euro debt crisis, the EU has beefed up its regulation of financial institutions, and little evidence has emerged of a wider contagion in Europe from Credit Suisse's dramatic rescue.

Financial supervision in Europe remains a patchwork of EU and national authorities pursuing common approaches rather than heeding an actual European rulebook.

The euro area still lacks a common deposit insurance system, which is widely considered a key defence against future European bank crises. Without this regulatory pillar, a stalemate between national capitals over how to share risk has left the bloc.

European banks generally have adequate cash buffers, but they are still urging vigilance, according to officials.

Paschal Donohoe, who leads the group of eurozone finance chiefs and Ireland's public expenditure minister, said he is very confident in the amount of liquidity and the amount of resilience that our banking system has built up. We can never be complacent. There is prudence because of the European Central Bank raising interest rates from record lows, making it more expensive for consumers and businesses to get loans. The ECB wants to bring back a 2% target on euro-area inflation, which was 8.5% in February.

ECB President Christine Lagarde and Donohoe are attending the EU summit to share their views on the economy.

I'm looking forward to the discussions with the president of the European Central Bank to understand where we are going and what tools they plan to use in the future — what are the prospects for our economy and inflation, Estonian Prime Minister Kaja Kallas said.