EU integration risks not priced in by markets even as political pressures rise: MAS

SINGAPORE'S central bank says that markets have not accurately priced in risks to the European Union's (EU) integration efforts following the United Kingdom's vote to pull out from it.

The Monetary Authority of Singapore (MAS) on Tuesday made this assessment while pointing out that political risks, such as those from anti-globalisation, are another rising challenge to global financial stability.

"Financial surveillance increasingly needs to take into account possible shocks from and repercussions of political events," it said in its annual financial stability review for 2016, released on Tuesday.

For example, following the UK's vote, or Brexit, political uncertainty in Europe has increased.

"Even then, markets do not appear to have priced in risks to EU integration as sovereign yields of more vulnerable eurozone economies remain much lower than during the height of the eurozone debt crisis," wrote MAS.

In addition to how Brexit will be carried out, MAS also sees the upcoming elections in France and Germany as cause for concern, as Eurosceptics may gain ground.

These political risks are a new blow to European banks already suffering from weak growth and low interest rates, said MAS.

And should they intensify, European banks may require sovereign assistance, which would in turn cast further doubts over European integration.

On a wider scale, the recent rise of anti-globalisation sentiment also worried MAS. This may have "long-lasting effects on global growth and downstream effects on the financial sector", it said.