European Central Bank Vice-President Luis de Guindos has warned that financial markets may be underestimating risks despite years of accumulated shocks. Speaking in an interview with El Periódico on 1 December, he said the euro area economy remains resilient but noted that valuations across several sectors are increasingly vulnerable.
De Guindos highlighted that European banks have weathered recent shocks thanks to post-crisis reforms such as the Single Supervisory Mechanism and stronger Basel rules. He stressed that countries like Portugal, Greece, Italy and Spain have improved competitiveness and ratings, helping to stabilise the broader system.
AI valuations and non-bank vulnerabilities
The ECB’s latest Financial Stability Review cautions that although there is no clear artificial intelligence bubble, market optimism is unusually high. De Guindos noted that gains remain concentrated in a small number of tech giants and that stock-market risk premia are “highly compressed.” He warned that any slowdown in real-world AI deployment could trigger a sharp valuation correction.
He also pointed to weaknesses in the fast-growing non-bank financial sector. Hedge funds have increased leverage, private equity and private credit markets lack transparency, and liquidity buffers may prove insufficient during large redemptions. The sector’s close ties to traditional banks mean that stress in opaque private markets could spill over into the wider financial system.
De Guindos reiterated the need for global regulation of non-banks and said Europe should move toward a more integrated supervisory framework. A unified approach, he argued, would also support the EU’s push for a capital markets union.
Fiscal risks and political uncertainty
Fiscal fundamentals in several euro area countries remain fragile. The ECB warns that slippage in budget plans, combined with unstable political majorities, could damage investor confidence. While not naming specific countries, de Guindos said Europe’s elevated debt levels and rising defence spending needs make long-term fiscal credibility essential.
Spain’s growth, he added, has benefited from strong immigration flows, competitive exports and large EU funds, though sustainability concerns persist. Housing supply has not kept pace with population growth, pushing rents higher and creating long-term constraints on mobility and productivity.
Interest rates, bank governance and the digital euro
De Guindos said the ECB’s current interest rate level is appropriate, though the Governing Council remains data-dependent. He dismissed fears of internal division, stating that governors broadly agree on the present stance.
On regulation, he confirmed that the ECB’s High-Level Task Force on Simplification will propose reducing the number of capital buffers and easing reporting burdens for smaller banks, without lowering overall capital requirements.
He also defended the ECB’s digital euro project, calling it the natural evolution of banknotes in an increasingly digital world. The digital euro, he said, would not pay interest but would reduce Europe’s dependence on non-European payment providers and strengthen monetary independence.
Looking ahead to the end of his term in May, de Guindos ruled out a return to domestic politics and said he is considering academic roles. He added that Spain should continue seeking representation in top ECB posts as positions open in 2027.