Chapter 17: Financial crisis and instability - European Climate Risk Assessment

Climate change is now recognised as a major macroeconomic, fiscal and financial risk. Extreme weather events are already causing large losses in Europe. For example, the 2021 floods in Germany, Belgium and the Netherlands cost an estimated EUR 44 billion (EEA, 2023d). These impacts affect public finances, insurers, investors and financial markets, as well as the wider economy. The economic costs of climate change are projected to increase significantly in the coming decades in Europe (Feyen et al., 2020; COACCH, 2020). These risks may arise from the economic and financial impacts in Europe, or from the impacts internationally cascading back to Europe (Mandel et al., 2020) and can arise directly or from complex interdependencies and contagion. This chapter investigates the risks of climate change to the public finances of
Member States and the EU budget, as well as the risks to the financial sector (public financial institutions, financial markets, private financial institutions, financial intermediaries, financial market infrastructure) and thus the risk to the financial system, including the interconnections to the real economy (FSB, 2021).