Fears of a brewing of another European financial crisis were expressed by a senior adviser to the German government in an interview to the BBC.

One of the first people to issue warnings of a slowdown in Europe’s largest economy last year was Dr Lars Feld, a member of the German Council of Economic Experts.

The prospect of economic has been downsized by the German government for this year to just 0.5 per cent compared to its earlier forecast of 1.8 per cent that had been made just a few months ago. The factors of this downgrade include a struggling manufacturing sector that is facing a number of challenges in the country.

In addition to Germany, Dr Feld is considering a number of other factors and economies of the European Union – Italy in particular. The Italian economy has been struggling to avoid a recession as it tried to cope with significantly increased government debt and a banking crisis. The crisis in the Italian banking sector could leave the country’s economy particularly vulnerable, believes Dr Feld.

The deficit and debts of the Italian government are increasing because of its spending and tax spending plans. That budget deficit is very close to the benchmark of the European Union and the European Commission which has made the financial credibility of the country more fragile.

Debts of more than £2 trillion lie over the Italian government which is primarily anti- EU.  There can be further pressure on its financial system because of concerns over breaching the EU benchmark for budget deficits.

“The banking system in Italy is not as safe as we might hope for. There is the potential for contagion, in particular, from the Italian banking system to other banking systems. And in the first place from the Italian government to the entire banking system,” Dr Feld said in the interview.

He concluded that “this might look like a new euro crisis”. In the last three years, bailout packages had to be given to seven Italian banks.

Dr Feld is also wary of risks to his own economy.

In the second half of last year, an underprepared car industry was hit by stricter emissions standards in the EU. On the other hand, there was severe disruption to the transport of goods on the Rhine because of a drought.

But these are temporary hurdles.

What is more concerning is slower demand from China, and the disruption of global supply chains caused by the US-China trade war has had the effect of weighing down of the manufacturing sector of Germany which accounts for about a fifth or Germany’s annual income.

According to Dr Feld, in addition to the above, the longer term challenge of how to stay ahead of the pack in the face of intense global competition is also faced by Germany.

The European Commission has been forced to reduce its forecast for growth across the EU to 1.4% this year primarily because of the challenges that the economies of Germany and Italy are facing.

(Adapted form BBC.com)