But their very complexity could leave counterparties vulnerable to significant risk that they do not currently recognize, and hence these instruments potentially expose the overall system if mistakes are large. In that regard, concerns have been raised about potential counterparty risks in the large interest rate hedging efforts of government-sponsored enterprises (GSEs) in support of their secondary mortgage market operations.
The economic outlook for the euro area is surrounded by an unusually high level of uncertainty and is subject to several risks. The ECB’s latest assessment confirmed that risks to price stability remain on the upside and that risks to economic growth continue to lie on the downside.