Economic growth has been observed for 18 consecutive quarters, the eurozone is showing the best performance for a decade. Leading indicators show that economic growth is finally reaching peripheral countries.
"Improving economic conditions reinforces the conclusion that there is no general revaluation (asset value) in the eurozone financial markets," the ECB said. "Nevertheless, global risks, in particular, could trigger a correction in the financial markets with negative consequences for financial stability."
Key vulnerabilities include a sharp reassessment of global risk premiums, weak banking sector profitability, renewed fears of public debt and liquidity risks in the non-banking financial sector, the ECB report said.
"The ongoing contraction of risk premiums and signs of increased risk taking in the financial markets are a concern, as they may create the preconditions for a significant correction in asset prices in the future," the regulator warned.
Turning to the subject of Germany’s regular fears, the ECB said that housing prices generally correspond to the fundamental indicators of the bloc’s economy, although commercial property prices continue to rise above their average long-term values.
The Bundesbank, a longtime critic of the ECB's ultra-soft policy, said earlier Wednesday that real estate prices in Germany could be 15-30% higher, although mortgage lending risks still seem limited.
While rising bond yields may again raise concerns about sovereign debt, most countries have increased the maturity of their debt, which suggests that any increase in the cost of financing will have a more gradual impact, the ECB said.