The European Central Bank said on Wednesday that investors’ pursuit of higher profits could be generating new price bubbles, sounding the alarm as financial markets chase quick gains.
In a strongly-worded message that underscored concerns in Frankfurt about the downside to runaway market enthusiasm, the ECB cautioned that the dash for higher returns could suddenly unravel, sending the investor herd charging in the opposite direction.
“As the search for yields intensifies, so do concerns regarding the build-up of imbalances and the possibility of a sharp and disorderly unwinding of recent investment flows,” the central bank said in a closely-watched biannual report.
With the financial crisis and any fear of a break-up of the euro all but forgotten, governments in debt-strapped countries from Italy to Ireland are finding it ever easier and cheaper to borrow.
European stock markets have seen stellar gains with those in Germany hitting record highs. Even Greece, which defaulted on a large swathe of its national debt just over two years ago, has started borrowing from investors again.
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