The European Central Bank (ECB) has warned Donald Trump's victory in the US Presidential Election earlier this month could hit European markets.
According to the Financial Times, political instability in the US could negatively affect investor sentiment around the world, with the possibility of a further surge in borrowing costs for eurozone governments.
The ECB said while the implications of Trump's election for the euro area remain "highly uncertain", the "risk of further asset price corrections" remains significant in bond markets.
According to the paper, Vítor Constâncio, vice-president at the ECB, said: "The world has changed a little bit. The risk of political uncertainty has risen."
A report from the bank added that Trump's election could lead to a cut-back on asset purchases and a rise in borrowing costs, potentially triggering a series of rate hikes from the US central bank - the Federal Reserve - and a strengthening of the dollar.
"If bond yields go up because there is the prospect suddenly that growth and inflation increase - then that is a positive development," Constâncio said. "The risk is, of course, that this situation would be more true in the US and less true in Europe and other parts of the world."
His comments put further pressure on policymakers in Europe. If Matteo Renzo, Italy's prime minister, loses a national referendum early next month, the country could see a political crisis and a significant rise in government lending.
Reflecting on Trump's victory, Constâncio added: "We are in a new phase of weaker world trade. If, on top of that, there would be a wave of protectionist measures, world trade and world growth would suffer."
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