According to the European Central Bank (ECB), the war in Ukraine is having a negative impact on financial stability in the euro area.

Higher energy and commodity prices as a result of the Russian attack posed a threat to economic growth and inflationary trends, according to the central bank's Financial Stability Report released on Wednesday.

"The terrible war in Ukraine has caused immeasurable human suffering," said ECB Vice President Luis de Guindos.

"It has also increased risks to financial stability, as it affects virtually every aspect of economic activity and financing conditions." The reaction of the financial markets to the outbreak of war was largely orderly, the central bank noted.

However, the prices for raw materials and energy are still subject to fluctuations.

Falling asset prices cannot be ruled out.

If the conflict in Eastern Europe continues to escalate or the global economy falters, or if interest rates have to be tightened more than expected, there could be further corrections on the financial markets.

In addition to the war, the expected normalization of monetary policy, a possible worsening of the corona crisis and a possible weak development of the Chinese economy also pose further dangers.

worried about the housing market

Last but not least, there could be a price correction on the overheated housing market in the course of abruptly rising mortgage interest rates.

According to the Financial Stability Report, houses in the euro area are currently overvalued by an average of almost 15 percent, and in some countries by as much as 60 percent.

The boom in the real estate market was also supported for a long time by the central bank's low-interest-rate policy, as building financing costs remained low.

However, with the rapidly rising inflation, market interest rates have already risen significantly, even before the ECB is expected to initiate an interest rate turnaround in July.

The ECB assumes that inflation-adjusted house prices will always fall by around 1 percent whenever mortgage rates rise by 0.1 percentage point.

In some member states there is a risk that a bubble has formed in the housing market with mutually increasing property prices and mortgage lending.

In Slovakia, Estonia and Lithuania there has been a sharp increase in real estate prices and a significant increase in mortgage loans at the same time.

At the same time, household debt is high in relation to economic output in some countries - above all in the Netherlands, Cyprus and Greece.

The ECB reiterated its request that banks should hold more capital commensurate with their exposure to the real estate sector.

In the corporate sector, inflation is a problem especially for companies that have never recovered significantly from the corona measures, such as airlines, hotel operators and the beverage industry.

"These vulnerabilities are exacerbated by the prospect of tighter financing conditions, which would have a particularly negative impact on the ability of lower-rated companies to service their debt," says the ECB report.

Highly indebted companies could also get into trouble with rising lending rates.

According to the ECB, the profit prospects for European banks have clouded over.

Meanwhile, central bankers' public discussions about rate hikes continue.

ECB Director Fabio Panetta spoke out in favor of a rather cautious tightening.

The central bank is currently confronted with an unprecedented series of economic shocks, said Panetta on Wednesday in Frankfurt.

"Like other major central banks, we are faced with the task of normalizing monetary policy at a time that is anything but normal." In this difficult situation, a gradual tightening is recommended.

Disagreement about interest rate hike

Finnish Council member Olli Rehn also spoke out in favor of a small rate hike in July.

The deposit rate should be raised by 0.25 percentage points to minus 0.25 percent, Rehn said Wednesday at an online appearance at an event hosted by the Central Bank of Finland.

In view of the high level of uncertainty in the economy as a result of the war in Ukraine, normalization should take place gradually.

By the fall, the deposit rate on money parked by commercial banks at the ECB should rise to 0 percent, Rehn said.

The governor of Finland's central bank followed statements by ECB President Christine Lagarde, who in a blog post on Monday spoke out in favor of a rather cautious tightening.

On the other hand, other Council members do not want to rule out a larger rate hike of 0.5 percentage point or even support such a step, such as Latvian Council member Martins Kazak, who said in an interview in Riga on Monday that a hike of 50 basis points is one thing, that can be discussed.

The Dutchman Klaas Knot and the Austrian Robert Holzmann also recently advocated following the American central bank in this way.

French Council member Francois Villeroy de Galhau, on the other hand, did not describe such a step as part of the consensus in the Governing Council.

The discussions are not good for the euro.

Its dollar rate fell significantly on Wednesday to last $ 1.0668.