Patsalides warns of financial stability risks from tech and geopolitics

The operating environment in the euro area has become increasingly complex, shaped by heightened geopolitical tensions, ongoing conflicts, trade fragmentation, increased financial stability risk, and challenges from new technologies.

The European Central Bank's Financial Stability Review of November 2025 underscores that financial stability risks remain elevated, although broadly contained.

It highlights vulnerabilities from geopolitical shocks, the challenging fiscal outlook in advanced economies, non-bank financial sector interconnectedness, and potential for abrupt repricing in financial markets.

Market valuations around AI are high and concentrated, amplifying risks when narratives shift.

Despite these challenges, the European economy has demonstrated resilience, with real GDP growth slightly above 1% and inflation gradually converging toward the ECB's 2% target.

Unemployment remains close to historic lows at just over 6%.

Euro area banks have also shown resilience to recent shocks, supported by strong profitability and ample capital and liquidity buffers.

Technology profoundly transforms the European banking sector, with digital banks gaining market share and payments innovation.

The digital euro is a strategic response to preserve public access to central bank money, support monetary sovereignty, and enhance retail payment resilience, complementing existing solutions.

Cyprus's economy performs robustly, with growth around 3.5% and favorable labor market conditions.

Public debt is on a downward trajectory.

Its banking sector remains resilient, boasting a Common Equity Tier 1 (CET1) ratio ten percentage points above the euro area average and strong liquidity.

Digital payment players spur competition and accelerate digital transformation.