ECB warns of carry trade and deficit risks

European governments managed to save their banks and shore up their economies in 2008 – but the fiscal price is now being paid, according to the European Central Bank's (ECB) latest financial stability report.

The report called on European governments to cut their deficits to avoid the "crowding out of private investment" and improve confidence in their debt. It also highlighted the dangers a sudden increase in funding costs might bring.

"Over the past six months interest rate volatility has rem

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