Any shocks across countries could trigger destabilising debt flows similar to that seen in Ireland during its financial crisis, the Central Bank Governor said today.
"Asymmetric shocks across countries may trigger pro-cyclical international debt flows, with households and firms in faster-growing countries tempted to borrow more, funded by outflows from slower-growing countries," Professor Philip Lane said.
Professor Lane said the European financial system currently faces myriad cyclical and structural challenges.
He made his comments at the European Financial Forum in Dublin today.
"If such flows become excessive, these may act as a destabilising force, as experienced by Ireland and Spain in the mid-2000s," Professor Lane said.
The Professor also called for 'global co-ordination', given the "considerable turbulence in emerging economies and much discussion of cyclical divergence between the US and European economies".
He also said that global co-ordination among regulators and policy officials was important for the sake of international financial stability.
